, Greece and Spain) in the eurozone during 2010-11 was disconnected from underlying increases in the debt-to-GDP ratios, and … after years of neglecting high government debt, investors became increasingly worried about this in the eurozone, and … risk in the eurozone intensifies macroeconomic instability, leading to bubbles in good years and excessive austerity in bad …

We find evidence that a significant part of the surge in the spreads of the PIGS countries in the Eurozone during 2010 …, investors became increasingly worried about this in the Eurozone, and reacted by raising the spreads. No such worries developed …. We argue that the systematic mispricing of sovereign risk in the Eurozone intensifies macroeconomic instability, leading …