EU officials were warned of risk over issuing financial warning

It was the first "general warning" the European Systemic Risk Board (ESRB) has issued since its creation in response to the financial crisis in 2010, aimed to "raise awareness" of the threat among EU countries and institutions.

But internal notes — seen by EUobserver — show some top-level officials initially doubted the "timing" of such a warning, fearing publication could further destabilise financial markets.

In a letter seen by EUobserver dated 23 September, ESRB chief Francesco Mazzaferro notified the EU Council that he intended to publish the warning.

But in a letter addressed to the Czech presidency received on 28 September, "strong concerns" were expressed such a warning could exacerbate financial instability further and become "self-fulfilling" if made public.

The letter was signed by Tuomas Saarenheimo, who heads the Economic and Financial Committee (EFC), a group composed of senior officials from national administrations and central banks, the ECB and the Commission.

After a so-called "silent written procedure", no formal objection to publication was made by any of the members.

But the letter signals heightened unease over financial stability among top EU lawmakers in a week when financial turmoil in UK financial markets threatened to spill over into EU and US financial markets.

"Plenty of euro area banks and insurance firms are exposed to UK gilts," financial analyst and former commission official Mujtaba Rahman tweeted. "This is serious. The European Commission is very worried. IMF is worried. White House is worried."

A meltdown in the UK pensions sector was only avoided when the Bank of England took emergency action and unleashed a £65bn [€74.7bn] bond-buying programme to stem a crisis in government debt markets.

"At some point this morning, I was worried this was the beginning of the end," a senior London-based banker told the Financial Times last week. "It was not quite a Lehman moment. But it got close."

In a U-turn widely-seen as humiliating, the British government on Monday abandoned its plan to abolish the 45-percent top rate of income tax which had helped caused the UK bond sell-off in the first place.

But the near-financial calamity led some commentators to call for deeper reform.

"Does it really make sense to perpetuate a system in which disastrous financial risks are built into the profit-driven provision of basic financial products like pensions and mortgages?" financial historian Adam Tooze wrote in his newsletter Chartbook. "It is time to ask who benefits and who pays the cost for continuing with this dangerously inflammable system."