Kobielarz, M., Uras, B. & Eijffinger, S. (2015) “Sovereign debt, bailouts and contagion in the Eurozone“, VoxEU Organisation, 12 Μαρτίου.
The Eurozone Crisis has been characterised by a sharp rise in sovereign interest rates in peripheral countries. The re-emergence of spreads between peripheral and core Eurozone countries at the start of the Greek crisis came after a decade of homogeneous interest rates in the monetary union. This column investigates the behaviour of spreads through the lens of a theory of implicit bailout guarantees.
Although the global financial crisis hit most of the advanced economies in 2008-09, the situation in the Eurozone deteriorated mostly at the turn of 2009 and 2010 when the newly elected Greek government discovered and announced the massive hidden government deficits, which caused a surge in interest rates on Greek sovereign bonds. The sudden rise in Greek borrowing costs was soon to be observed in sovereign interest rates in other southern European countries (Figure 1), pushing some of these countries to apply for international bailouts.
The simultaneous and rapid increase in spreads on sovereign bonds within the Eurozone constitutes a major threat to the survival of the monetary union; and it therefore gets widely discussed among economists (see, among many Vox columns, Corsetti and Müller 2011, Manasse and Zavalloni 2012). Nevertheless, the theoretical mechanism behind the simultaneous surge in sovereign borrowing costs is not yet well understood.
Σχετικές αναρτήσεις:
- Glover, B. & Richards-Shubik, S. (2014) “Contagion in the European sovereign debt crisis“, VoxEU Organisation, 12 Νοεμβρίου.
- Cline, R. W. (2014) Managing the Euro Area Debt Crisis, Washington: Peterson Institute for International Economics, Ιούνιος.
- Vassilios G. Papavassiliou: Financial contagion during the European sovereign debt crisis: a selective literature review, Παρατηρητήριο για την Κρίση, 11 Ιουνίου 2014.