The Euro Area Sovereign Debt Crisis: Safe Haven, Credit Rating Agencies and the Spread of the Fever from Greece, Ireland and Portugal

61 Pages Posted: 6 Feb 2012

See all articles by Roberto A. De Santis

Roberto A. De Santis

European Central Bank (ECB) - Directorate General Economics

Date Written: January 24, 2012

Abstract

Since the intensification of the crisis in September 2008, all euro area long-term government bond yields relative to the German Bund have been characterized by highly persistent processes with upward trends for countries with weaker fiscal fundamentals. Looking at the daily period 1 September 2008 - 4 August 2011, we find that three factors can explain the recorded developments in sovereign spreads: an aggregate regional risk factor, the country-specific credit risk and the spillover effect from Greece. Specifically, higher risk aversion has increased the demand for the Bund and this is behind the pricing of all euro area spreads, including those for Austria, Finland and the Netherlands. Country-specific credit ratings have played a key role in the developments of the spreads for Greece, Ireland, Portugal and Spain. Finally, the rating downgrade in Greece has contributed to developments in spreads of countries with weaker fiscal fundamentals: Ireland, Portugal, Italy, Spain, Belgium and France.

Keywords: sovereign spreads, credit ratings, spillovers

JEL Classification: G15, F36

Suggested Citation

De Santis, Roberto A., The Euro Area Sovereign Debt Crisis: Safe Haven, Credit Rating Agencies and the Spread of the Fever from Greece, Ireland and Portugal (January 24, 2012). ECB Working Paper No. 1419. Available at SSRN: https://ssrn.com/abstract=1991159

Roberto A. De Santis (Contact Author)

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

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