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Banking and Debt Crises 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.
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Suggested Citation

  • Bertrand Candelon & Franz Palm, 2010. "Banking and Debt Crises in Europe: The Dangerous Liaisons?," De Economist, Springer, vol. 158(1), pages 81-99, April.
    • Handle: RePEc:kap:decono:v:158:y:2010:i:1:p:81-99
    DOI: 10.1007/s10645-010-9138-1
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    More about this item

    Keywords

    Banking crisis; Sovereign debt crisis; European Union; E32; F36;
    All these keywords.

    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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