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This paper sets the background for the Special Issue of the Journal of Empirical Finance on the European Sovereign Debt Crisis. It identifies the channel through which risks in the financial industry leaked into the public sector. It discusses the role of the bank rescues in igniting the...
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financial system, lower the bail-out costs, and decrease the bail-out cost volatility. Application: This new concept of soft …
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of 2007-2008.Two borrowing countries share a bailout guarantee by an institution with limited lending capacity. Contagion … occurs as one country needing (or being perceived as close to needing) a bailout diminishes the prospects of another country … receiving a bailout as well.We investigate how the availability of bailouts affects the probability of a debt crisis and find …
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