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Banking and Debt Crisis in Europe: The Dangerous Liaisons?

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  • Bertrand Candelon
  • Franz Palm

Abstract

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.

Suggested Citation

  • Bertrand Candelon & Franz Palm, 2010. "Banking and Debt Crisis in Europe: The Dangerous Liaisons?," CESifo Working Paper Series 3001, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3001
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    References listed on IDEAS

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    Cited by:

    1. Carlos Pestana BARROS & Zhongfei CHEN & Luis A. GIL-ALANA, 2013. "Long Memory in the Housing Price Indices in China," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(7), pages 785-807, July.
    2. Kontonikas, Alexandros & Arghyrou, Michael G. & Afonso, António, 2012. "The determinants of sovereign bond yield spreads in the EMU," SIRE Discussion Papers 2012-88, Scottish Institute for Research in Economics (SIRE).
    3. repec:kap:iaecre:v:17:y:2011:i:1:p:45-65 is not listed on IDEAS
    4. Elena-Ivona Dumitrescu & Bertrand Candelon & Christophe Hurlin & Franz C. Palm, 2012. "Multivariate Dynamic Probit Models: An Application to Financial Crises Mutation," Working Papers halshs-00630036, HAL.
    5. Karatas, B., 2014. "Financial crisis and monetary policy," Other publications TiSEM 41e463f0-e122-4379-8db5-6, Tilburg University, School of Economics and Management.
    6. Lino Sau, 2015. "Debt deflation worries: a restatement," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(3), pages 279-294, July.
    7. Carlos A. Primo Braga & Gallina A. Vincelette, 2011. "Sovereign Debt and the Financial Crisis : Will This Time Be Different?," World Bank Publications, The World Bank, number 2534, April.
    8. Eijffinger, Sylvester C W & Karatas, Bilge, 2013. "Three Sisters: The Interlinkage between Sovereign Debt, Currency and Banking Crises," CEPR Discussion Papers 9369, C.E.P.R. Discussion Papers.
    9. repec:bla:worlde:v:40:y:2017:i:9:p:1718-1749 is not listed on IDEAS
    10. Beniamino Moro, 2013. "The Run On Repo and the Liquidity Shortage Problems of the Current Global Financial Crisis: Europe vs. The US," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 2(1), pages 41-77, January.
    11. Purificación Parrado-Martínez & Antonio Partal-Ureña & Pilar Gómez Fernández-Aguado, 2016. "Banking Soundness Indicators and Sovereign Risk in Time of Crisis: The Case of the European Union," The World Economy, Wiley Blackwell, vol. 39(8), pages 1172-1193, August.
    12. Lawson, Cornelia & Soós,Sándor, 2014. "A Thematic Mobility Measure for Econometric Analysis," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201408, University of Turin.
    13. Balteanu, Irina & Erce, Aitor, 2014. "Bank crises and sovereign defaults in emerging markets: exploring the links," Globalization and Monetary Policy Institute Working Paper 184, Federal Reserve Bank of Dallas.
    14. Gabriel A. Giménez-Roche, 2011. "Institutional Illusion and Financial Entrepreneurship in the European Debt Scheme," Chapters,in: Institutions in Crisis, chapter 1 Edward Elgar Publishing.
    15. Ureche-Rangau, Loredana & Burietz, Aurore, 2013. "One crisis, two crises…the subprime crisis and the European sovereign debt problems," Economic Modelling, Elsevier, vol. 35(C), pages 35-44.
    16. Bertrand Candelon & Elena-Ivona DUMITRESCU & Christophe HURLIN & Franz C. PALM, 2011. "Modelling Financial Crises Mutation," LEO Working Papers / DR LEO 1238, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    17. Erce, Aitor, 2015. "Bank and sovereign risk feedback loops," Globalization and Monetary Policy Institute Working Paper 227, Federal Reserve Bank of Dallas.
    18. Eleonora Cutrini and Giorgio Galeazzi, 2014. "Contagion in the Euro crisis: capital flows and trade linkages," Working Papers 44-2014, Macerata University, Department of Studies on Economic Development (DiSSE), revised Nov 2014.

    More about this item

    Keywords

    banking crisis; sovereign debt crisis; European Union;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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