A Market Perspective on the European Sovereign Debt and Banking Crisis
A Market Perspective on the European Sovereign Debt and Banking Crisis:

Europe has been beset by an interrelated banking crisis and sovereign debt crisis. Bond spreads faced by Greece and Ireland, and to a lesser extent Portugal followed by Spain, have increased. This paper explores these issues from the perspective of financial markets, focusing mainly on the four coun...

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Bibliographische Detailangaben
1. Verfasser: Blundell-Wignall, Adrian (VerfasserIn)
Weitere Verfasser: Slovik, Patrick (MitwirkendeR)
Format: Elektronisch Buchkapitel
Sprache:English
Veröffentlicht: Paris OECD Publishing 2011
Schlagworte:
Finance and Investment
Online-Zugang:DE-384
DE-473
DE-824
DE-29
DE-739
DE-355
DE-20
DE-1028
DE-1049
DE-521
DE-861
DE-898
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DE-19
URL des Erstveröffentlichers
Zusammenfassung:Europe has been beset by an interrelated banking crisis and sovereign debt crisis. Bond spreads faced by Greece and Ireland, and to a lesser extent Portugal followed by Spain, have increased. This paper explores these issues from the perspective of financial markets, focusing mainly on the four countries in the frontline of these pressures: Greece and Portugal, on the one hand, where the problems are primarily fiscal in nature; and Ireland and Spain, on the other, where banking problems related to the property boom and bust have been the key moving part. The paper first examines the probabilities of default implicit in observable market spreads and considers these calculations against sovereign debt dynamics. It then explores the implications of the interaction between bank losses and fiscal deficits on the one hand, and the feedback that any debt haircuts anticipated by markets could have on bank solvency. The study finds that market-implied sovereign default probabilities do in fact discriminate quite clearly between countries based on five criteria that affect the probability of debt restructuring. The discussion highlights some implications for banking system balance sheets of expected losses and shows the potential impact on them of sovereign restructuring implicit in market analysis. While the paper does not make any recommendations for policy action, it does explore a range of policy options and the implications each might have for the financial markets. JEL Classification: G01, G12, G15, G18, G21, H06, H60, H62, H63, H68 Keywords: financial crisis, sovereign risks, public deficits and debt, bond markets, banks
Beschreibung:1 Online-Ressource (28 Seiten) 19 x 27cm
DOI:10.1787/fmt-2010-5kggc0z2hm9r

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