The Financial Crisis Evolved into a European Sovereign Debt Crisis in Euro Area Periphery Countries

The financial crisis evolved into a European sovereign debt crisis as investors started to doubt the sustainability of government debt in euro area periphery countries. Capital left Greece, Ireland, Portugal, and later Spain and Italy. The capital flight from South to North sharply increased government bond yields in the euro area crisis economies. Discrimination between bonds did not only depend on debt-to-GDP ratios. Instead, investors revised expectations about future developments, tax revenues, or the sustainability of current account balances, pushing up government borrowing costs.

--Andreas Hoffmann and Nicolas Cachanosky, "Unintended Consequences of ECB Policies in Europe," in Banking and Monetary Policy from the Perspective of Austrian Economics, ed. Annette Godart-van der Kroon and Patrik Vonlanthen (Cham, CH: Springer International Publishing, 2018), 114.