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

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  • Cinthia de Souza

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.

Suggested Citation

  • Cinthia de Souza, 2024. "Sovereign Bondholders and the Eurozone core-periphery Divide: from the Debt Crisis to the Quantitative Tightening," Department of Economics University of Siena 921, Department of Economics, University of Siena.
    • Handle: RePEc:usi:wpaper:921
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    Keywords

    Sovereign Debt; Government Bondholders; Financial Asymmetries; Eurozone Jel Classification:H63; G15; E58;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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