Sovereign Default Risk and Bank Fragility in Financially Integrated Economies

Olivier Jeanne, Patrick Bolton, Mon, 04/25/2011

The Eurozone crisis has thrown into relief the dangers of financial contagion. The authors of CEPR DP8358 analyze the causes and consequences of sovereign debt crises in zones with financial integration. They conclude that without fiscal integration, the supply of government debt in these areas reaches an inefficient equilibrium, with safer governments inefficiently issuing too little of their high-quality debt and riskier governments issuing too much.

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URL: www.cepr.org/DP8358

Topics: Financial markets International finance Macroeconomic policy

Tags: financial integration, banking, contagion, default, Eurozone crisis, government debt, collateral