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.As with any taxonomy of countries, the groupings discussed here does not do justice to the further more graded and nuanced variations. Nevertheless ... These regressions help, for example, to differentiate Ireland and Greece, two countries with the largest increases in sovereign spreads. ... effect but the economic effects are smaller; and the markets have not focused on their public debt dynamics. VII.
|Title||:||The Eurozone Crisis|
|Author||:||Damiano Sandri, Mr. Ashoka Mody|
|Publisher||:||International Monetary Fund - 2011-11-01|