People walking through floodwater outside the Doge's Palace in Venice, Italy (c) Adam Sébire / Climate Visuals
The rising threat of water scarcity puts almost 15% of the euro zone’s economic output at risk, according to new research conducted by the European Central Bank (ECB) with Oxford University.
The researchers also found that more than 34% of the outstanding loans of 2,500 euro area banks – over €1.3tn – is currently extended to sectors exposed to high water scarcity risk.
“Central banks and supervisors need to gain a better understanding of just how vulnerable the economy and the financial system are to nature degradation,” Frank Elderson, ECB board member, said in a speech at the Naturalis Biodiversity Center in the Netherlands.
“Water – too little, too much or too dirty water that is – has been identified as posing the most significant risk to the euro area economy,” he said. “Water is not just any resource – it is one of the most essential natural resources we possess”.
Brussels will urge EU countries to cut water use by at least 10% by 2030 due to concern about dwindling groundwater reserves, the Financial Times has reported.
The ECB research – conducted with the Resilient Planet Finance Lab at the University of Oxford – showed that up to 30% of agricultural sectoral output is at risk from surface water scarcity in southern Europe, with the risk lower in the north, falling to around 12% in Finland.
Even a country like the Netherlands could suffer, Elderson said, noting that a drought that hit the country in 2018 caused losses of up to €1.9bn for agriculture and €155m for shipping, plus widespread but hard-to-quantify damage to ecosystems.
“Droughts are only projected to increase further as the climate crisis continues to develop. Worryingly, in the driest scenario an average summer in the 2040s will be about as dry as an extremely dry summer now,” he said.
This spring is on track to become the driest ever recorded in the Netherlands, Elderson said, with more frequent droughts even posing a threat to the Dutch tulip industry.
Manufacturing, mining, water-supply utilities, construction, and accommodation and food services could also take a big hit from water shortages: over 20% of their output is at risk in southern Europe and more than 10% elsewhere, the ECB said.
“Over the longer term, the effects of persistent water shortages can spread through commodity markets, driving up water and food prices and contributing to broader inflationary pressures,” the ECB wrote in a blog.
The ECB is now examining changes in the probability of default in the sectors most affected by nature degradation, with results due later in the year.
Elderson said it was encouraging that the Network for Greening the Financial System (NGFS) – a network of 145 central banks and supervisors – is also examining nature-related financial risks, while the Financial Stability Board recently found that a growing number of financial authorities are considering the potential implications of nature-related risks.
The NGFS has predicted that climate disasters could dent global economic growth by up to 3% within the next five years, but it has admitted that its scenarios do not yet take account of nature-related risks.
“Multiple stakeholders are making progress in better accounting for ecosystem services. That’s good news, and this work must continue. Because dwindling ecosystems are no longer peripheral – they are central to financial stability, the economy and, ultimately, our daily lives,” Elderson said.
This page was last updated May 30, 2025
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Emma Thomasson is a British journalist, consultant and trainer based in Berlin. She is an expert in economics, politics, business and technology. She previously worked for Reuters as a correspondent and bureau chief in Germany, Switzerland, the Netherlands, South Africa and the UK.
