. In euro area countries, sovereign debt-to-GDP ratios are on the rise and reductions in expected fiscal surpluses raise …

. In euro area countries, sovereign debt-to-GDP ratios are on the rise and reductions in expected fiscal surpluses raise …

Financial institutions, especially in Europe, hold a disproportionate amount of domestic sovereign debt. We examine the … fiscal stress. We assume banks can hold sovereign debt according to a zero-risk weight policy and contrast this scenario to … one in which banks weight the sovereign debt according to default probabilities. Banks are assumed to miscalculate the …

the cost of rolling over public debt, but decrease lending, real activity, and tax collections. They lower the incidence …