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Banking and Debt Crises in Europe: The Dangerous Liaisons?

  • Bertrand Candelon

    ()

  • Franz Palm

    ()

The potential mutation of the Sub-Prime banking crisis into a sovereign debt one in Euro area countries is investigated. After reviewing the criteria used to measure the debt vulnerability, the balance sheet approach (BSA) is presented in order to illustrate the potential connections between these two types of crises. A graphical analysis yields evidence that at the end 2009 the probability of observing a Euro area country defaulting is less likely than six month before. Nevertheless, the serious threats, which concern Greece and Ireland, do not permit us to exclude the occurrence of a contagious, or self-fulfilling, sovereign debt or currency crises in Euro area in the future.

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File URL: http://hdl.handle.net/10.1007/s10645-010-9138-1
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Article provided by Springer in its journal De Economist.

Volume (Year): 158 (2010)
Issue (Month): 1 (April)
Pages: 81-99

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Handle: RePEc:kap:decono:v:158:y:2010:i:1:p:81-99
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100260

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  1. Obstfeld, Maurice, 1996. "Models of currency crises with self-fulfilling features," European Economic Review, Elsevier, vol. 40(3-5), pages 1037-1047, April.
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