Photo: The Canadian Press. All rights reserved.

The Bank of Canada building is shown in Ottawa on Oct. 22, 2009. The Bank of Canada continues to warn that the high level of household debt and overvalued real estate in this country have left the economy vulnerable if a financial shock erupts in Europe. THE CANADIAN PRESS/ Adrian Wyld

The Bank of Canada continues to warn that the high level of household debt and overvalued real estate in this country have left the economy vulnerable if a financial shock erupts in Europe.

"Markets in Canada have been relatively stable ... nevertheless, a further significant deterioration in global financial conditions could have a considerable impact in Canada through trade, financial and confidence channels," the bank said Thursday its semi-annual financial systems review.

In fact, the bank says the spillover effects on Canada's financial institutions, such as banks, "would be substantial."

While the report does not attempt to place odds on the chance of a Europe-centred shock, it judges the risks as "very high," or the top level in its weighting scale.

The dire warning, not altogether unexpected from the central bank given renewed turbulence in Europe, including a possibility that Greece will exit the euro currency zone after Sunday's elections, gives some urgency to the G20 summit of leaders in Mexico next week, where Europe will be the main topic.

For Canada, the central bank suggests households here may be in worse position for another shock than they were in 2008, when the collapse of a prominent U.S. investment banker sparked a cash crunch and recession.

Since that time, the report said, consumers have taken on significant amounts of new debt and real estate prices are also at record highs.