This paper studies the emergence of sovereign bond yield spreads in the Eurozone prior to the financial crisis. While … spreads were close to zero in European government debt markets until the mid-2000s, they have persistently widened since then … cycles deviate most from the average Eurozone cycle. In contrast, spreads did not arise in response to adverse macroeconomic …

, increasing convergence with the core Euro countries. However, the debt crisis dramatically worsened citizens’ perceptions of …

plan of last resort for resolving the present EMU sovereign-debt crisis. The key ingredients of our proposal involve a …