Sovereign Risk Analysis During The European Debt Crisis

After the break out of the European Sovereign Debt Crisis in2009, sovereign risk ofmost countries become more and more serious, it also grows into the main factor whichaffecting the financial stability. The enlarged sovereign risk, which performances as thebehavior of sovereign interest rates as well as the sovereign CDS premium in the euro area.There are many factors making the sovereign risk more and more serious, but no uniformstandards to measure it. The most top three credit rating agencies are Standard&Poor,Moody’s and Ficth, although the methodologies they use are not very identical, the impactfactors are nearly the same. The paper studies these factors, uses the10year yield spreadsrelative to Germany for some euro area countries and makes empirical studies. The papersuggest that, during the period, for several countries the enlarged sovereign risk hasincreased to levels that are well above those that could be justified on the basis of somemacroeconomic fundamentals. Among the possible reasons for this gap, the analysisfocuses on the perceived risk of the break out of the euro area and the Sovereign riskcontagion in the Eurozone. Using the quantitative analysis and the qualitative analysis, webelieve our analysis has some significant meaning.The paper summarizes as below: The first chapter is a summary about the researchbackground and the significant of the study. The second one gives a brief description ofthe euro debt crisis and pays attention to the sovereign risk; the third chapter analysis themethodology and the determinations of sovereign risk; the rest three chapters examine thesovereign CDS premium and the ten year sovereign spreads relative to Germany, accordingthe some economic and financial fundamentals and Sovereign risk contagion, respectively.As mentioned above, the forth chapter finds that the fundamental factors cannot explain theeffecting on the enlarged CDS premium as well as the ten year sovereign spreads relative toGermany, the rest two chapters explain the undiscovered non economic factors in theEmpirical point of view.