Summary

At the core of the Greek sovereign debt crisis was a vicious cycle, or ‘doom loop’: the worse the sell-off in sovereign bonds, the less valuable the bonds held by European banks became, which in turn necessitated costly government bailouts that eroded the national debt outlook, thus further exacerbating the sovereign sell-off.

This was a dynamic that nearly destroyed the monetary union, and the vulnerabilities that were laid bare in 2010 have yet to be addressed by new regulations; they remain to this day. In fact, according to recent ECB data reviewed by Deutsche Bank, the euro zone’s COVID-related borrowing binge might be setting the stage for the Union’s next monetary crisis.