The Eurozone Crisis: How Banks and Sovereigns Came to Be Joined At the Hip

November 1, 2011

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Format: Chicago

Damiano Sandri, and Ashoka Mody. The Eurozone Crisis: How Banks and Sovereigns Came to Be Joined At the Hip, (USA: International Monetary Fund, 2011) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We use the rise and dispersion of sovereign spreads to tell the story of the emergence and escalation of financial tensions within the eurozone. This process evolved through three stages. Following the onset of the Subprime crisis in July 2007, spreads rose but mainly due to common global factors. The rescue of Bear Stearns in March 2008 marked the start of a distinctively European banking crisis. During this key phase, sovereign spreads tended to rise with the growing demand for support by weakening domestic financial sectors, especially in countries with lower growth prospects and higher debt burdens. As the constraint of continued fiscal commitments became clearer, and coinciding with the nationalization of Anglo Irish in January 2009, the separation between the sovereign and the financial sector disappeared.

Subject: Banking, Economic sectors, Financial crises, Financial institutions, Financial sector, Public debt, Sovereign bonds, Stocks

Keywords: Anglo Irish, Anglo nationalization, Banking sector, Bear Stearns, Europe, Eurozone, Eurozone country, Eurozone crisis, Eurozone economy, Eurozone sovereign bond bond market, Financial crisis, Financial sector, Flight to quality, Global, Sovereign bond, Sovereign bonds, Sovereign spread, Sovereign spreads, Stock market, Stocks, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/269
Stock No:

WPIEA2011269
ISBN:

9781463925215
ISSN:

1018-5941

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