The one-notch upgrade reflects a material improvement in the underlying credit strength of Cyprus's domestic banking system, as well as the Cypriot economy's resilience to the coronavirus pandemic shock thanks to sizeable European Union funding and robust GDP growth prospects.

Although a digital euro would increase financial inclusion and be an alternative to stablecoins, it would increase euro area banks' funding costs and reduce their fee income, hurting their already-weak profitability.

The pandemic’s uneven effects on European labour markets and savings will influence consumer spending patterns, the availability of credit to individuals and the direction of government regulation throughout the region.

Physical climate risk is broadly credit negative for sovereigns, particularly for emerging market countries with climate-dependent economic structures and low-quality infrastructure. Adaptation strategies to increase climate resiliency are widely untested.