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Repatriation of Debt in the Euro Crisis: Evidence for the Secondary Market Theory

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  • Filippo Brutti
  • Philip U. Sauré

Abstract

The Euro Crisis has stopped the process of the European financial integration and triggered a strong repatriation of debt from foreign to domestic investors. We investigate this empirical pattern in light of competing theories of cross-border portfolio allocation. Three empirical regularities stand out: i) repatriation of debt occurred mainly in crisis countries; ii) repatriation affected mainly public debt; iii) public debt of crisis countries was reallocated to politically influential countries within the Euro Area. Standard theories are in line with pattern (i) at best. We argue that the full picture constitutes evidence for the "secondary market theory" of sovereign debt.

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  • Filippo Brutti & Philip U. Sauré, 2014. "Repatriation of Debt in the Euro Crisis: Evidence for the Secondary Market Theory," Working Papers 2014-03, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2014-03
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    Cited by:

    1. Raphael A. Auer & Cedric Tille, 2016. "The banking sector and the Swiss financial account during the financial and European debt crises:," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 67(02), pages 69-97, August.
    2. Yusuf Soner Baskaya & Bryan Hardy & Ṣebnem Kalemli-Özcan & Vivian Yue, 2016. "Sovereign Risk and Bank Lending: Evidence from 1999 Turkish Earthquake," NBER Working Papers 22335, National Bureau of Economic Research, Inc.
    3. Bouvatier, Vincent & Delatte, Anne-Laure, 2015. "Waves of international banking integration: A tale of regional differences," European Economic Review, Elsevier, vol. 80(C), pages 354-373.
    4. Gennaioli, Nicola & Martin, Alberto & Rossi, Stefano, 2018. "Banks, government Bonds, and Default: What do the data Say?," Journal of Monetary Economics, Elsevier, vol. 98(C), pages 98-113.
    5. Galina Hale & Maurice Obstfeld, 2016. "The Euro And The Geography Of International Debt Flows," Journal of the European Economic Association, European Economic Association, vol. 14(1), pages 115-144, February.
    6. Schioppa, Claudio A. & Papadia, Andrea, 2015. "Foreign Debt and Secondary Markets: The Case of Interwar Germany," MPRA Paper 102863, University Library of Munich, Germany, revised 2016.
    7. Engler, Philipp & Große Steffen, Christoph, 2016. "Sovereign risk, interbank freezes, and aggregate fluctuations," European Economic Review, Elsevier, vol. 87(C), pages 34-61.
    8. Ohls, Jana, 2017. "Moral suasion in regional government bond markets," Discussion Papers 33/2017, Deutsche Bundesbank.
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    13. Eylem Ersal Kiziler & Ha Nguyen, 2014. "Currency Risk and Business Cycle Risk in the Geography of Debt Flows to Peripheral Europe," Working Papers 14-03, UW-Whitewater, Department of Economics.
    14. Matteo Crosignani & Miguel Faria-e-Castro & Luís Fonseca, 2015. "The Portuguese Banking System during the Sovereign Debt Crisis," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    15. Patricia Gómez-González, 2015. "Financial innovation in sovereign borrowing and public provision of liquidity," Working Papers 1511, Banco de España.
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    More about this item

    Keywords

    Debt Repatriation; Sovereign Risk; Secondary Markets; Euro Crisis; Portfolio Home-Bias;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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