The European Sovereign Debt Crisis: What Have We Learned?

This paper sets the background for the Special Issue of the Journal of
Empirical Finance on the European Sovereign Debt Crisis. It identifies the
channel through which risks in the financial industry leaked into the public
sector. It discusses the role of the bank rescues in igniting the sovereign
debt crisis and reviews approaches to detect early warning signals to
anticipate the buildup of crises. It concludes with a discussion of
potential implications of sovereign distress for financial markets.