Sovereign Bondholders and the Eurozone core-periphery Divide: from the Debt Crisis to the Quantitative Tightening

Cinthia de Souza ()

Department of Economics University of Siena from Department of Economics, University of Siena

Abstract: This paper analyses the role of sovereign investor groups in shaping financial instability and asymmetries within the Eurozone and their interaction with its institutional framework. It proposes a framework to assess the impacts of government debt outflows on countries’ financial fragility under varying scenarios, including different paces of Quantitative Tightening (QT) and evolving investor group dynamics. Our findings indicate that foreign investors play a potential asymmetrical role in the Eurozone, exhibiting destabilising behaviour towards peripheral government debt. This uneven role can be exacerbated by a market-based institutional approach to public debt or mitigated by appropriate support for these state liabilities. By combining the impacts of QT with the potential reemergence of foreign flow asymmetries in sovereign markets, our findings highlight that such dynamics could further deepen the Eurozone's core-periphery divide.

Keywords: Sovereign Debt; Government Bondholders; Financial Asymmetries; Eurozone Jel Classification:H63; G15; E58 (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-cba and nep-eec
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Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:921

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