(Bloomberg) -- The legal challenge to the European recovery fund at Germany’s top court could be catastrophic for the region’s economy, European Central Bank Executive Board member Isabel Schnabel warned.

“It would be an economic disaster for Europe if the disbursement of the funds were to be delayed indefinitely,” she said in an interview published in German magazine Der Spiegel on Friday. “If that were the case, Europe would have to think about alternative solutions, but that could take some time.”

The region’s 750 billion-euro ($892 billion) stimulus plan is a key plank of the European Union’s economic response to the pandemic crisis, consisting of grants and loans that will be primarily given to the worst-hit nations. The fund-raising must be ratified by all 27 member states, a step which Germany has been temporarily prevented from taking.

A political group filed an emergency case at the end of March claiming that the EU shouldn’t be allowed to issue the joint debt. In response, the Federal Constitutional Court said it needed to assess whether a preliminary order would be needed -- while that step isn’t uncommon and can usually be done quickly, it has raised concerns that the EU’s cumbersome setup will undermine the recovery.

The bloc has already faced criticism that both its fiscal efforts and its progress on vaccinations are falling behind. The International Monetary Fund warned this week about widening inequality and a divergence between countries’ recovery speeds, with other advanced economies set to return to their pre-crisis levels far more rapidly than the euro area.

Markets, Archegos

Schnabel, who is responsible for market operations at the ECB, warned that with equity and real-estate prices relatively high, “the risks of a correction are increasing, especially if the economic recovery falls short of expectation.”

She also addressed the collapse of the U.S. hedge fund Archegos Capital Management and the exposure of European banks. Credit Suisse Group AG lost $4.7 billion and Deutsche Bank AG only narrowlt escaped a similar hit.

“That is indeed a remarkable incident,” she said. “There is a need to scrutinize the reasons why the banks enabled the fund to leverage up to such an extent. That could have resulted in further contagion effects.”

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