This paper argues that the Eurozone crisis stems from a risk management failure in the Eurosystem's design, and that applying insurance theory is useful. We model risk neutral agents choosing portfolios of government bonds of n countries in a monetary union and other assets. We firstly analyse a...

Using novel data on individual euro area banks' balance sheets this paper shows that exposure to stressed European sovereigns manifested in a liquidity shock to their international funding through two channels: (i) a contraction in cross-border funding, and (ii) a contraction in US wholesale...

We identify the determinants of all German banks’ sovereign debt exposures between 2005 and 2013 and test for the implications of these exposures for bank risk. Larger, more capital market affine, and less capitalised banks hold more sovereign bonds. Around 15% of all German banks never hold...

The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt relief - over 50 per cent of 2012 GDP - with minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector...

We develop a sovereign debt model with official and private creditors where default risk depends on both the level and the composition of liabilities. Higher exposure to official lenders improves incentives to repay but carries extra costs, such as reduced ex-post flexibility. The model implies...

We study the sustainability of sovereign debt accumulation in 15 OECD countries using quarterly data from 1980 to 2010 with a focus on how and in what countries debt sustainability changed after the commencement of the Euro Convergence Criteria in 1997 as well as after the financial meltdown in...