The authors test Paul De Grauwe’s eurozone fragility hypothesis using a time window around the announcement of the Outright Monetary Transactions (OMT) programme. The findings reveal significant contagion from Spain to other eurozone countries, but solely during the pre-announcement period....

Paul De Grauwe's Eurozone fragility hypothesis states that sovereign debt markets in a monetary union without a lender-of-last-resort are vulnerable to self-fulfilling dynamics fuelled by pessimistic investor sentiment that can trigger default. We test this contention by applying an eclectic...