Summary
The potential mutation of the Sub-Prime banking crisis into a sovereign debt one in Euro area countries is investigated. After reviewing the criteria used to measure the debt vulnerability, the balance sheet approach is presented in order to illustrate the potential connections between these two types of crises. A graphical analysis yields evidence that at the end 2009 the probability of observing a Euro area country defaulting is less likely than six month before. Nevertheless, the serious threats, which concern Greece and Ireland, do not permit us to exclude the occurrence of a contagious, or self-fulfilling, sovereign debt or currency crises in Euro area in the future.
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An erratum to this article can be found at http://dx.doi.org/10.1007/s10645-010-9144-3
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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Candelon, B., Palm, F.C. Banking and Debt Crises in Europe: The Dangerous Liaisons?. De Economist 158, 81–99 (2010). https://doi.org/10.1007/s10645-010-9138-1
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DOI: https://doi.org/10.1007/s10645-010-9138-1