Austerity transmitted sovereign-risk to the banks that held the bonds.

Evidence

Austerity clearly is not working if “not working” means reducing the debt and promoting growth. Instead, in making these governments’ bonds riskier (as seen in the interest rate charged), the policy has indirectly made big European banks that hold lots of them (mainly in Germany, France, and Holland) riskier in the process. This was recognized by global investors when pretty much all private-sector lending to the European banking sector disappeared in the summer and fall of 2011, the response to which has been emergency liquidity provision by the European Central Bank (ECB) in the form of the so-called long-term refinancing operation (LTRO), the ancilliary emergency liquidity assistance program (ELA), and of course, demands for more austerity. — Mark Blyth, Austerity, 31

Categorization

• XREF: Connects to the contagion mechanism between sovereign and bank risk central to Mattei’s analysis of austerity’s self-defeating logic. — connects to: European austerity serves to reserve sovereign balance-sheet space for too-big-to-bail bank rescues — Mark Blyth, Austerity: The History of a Dangerous…, 617; Austerity may have impoverished millions to save a dying banking sector. — Mark Blyth, Austerity: The History of a Dangerous…, 630; Austerity cuts raised the debt-to-GDP ratios of Eurozone crisis states. — Mark Blyth, Austerity: The History of a Dangerous…, 30 (+6 more)

Broader Connections

• The sovereign debt crisis is a transmuted and camouflaged banking crisis #corroborates (0.85) — Mark Blyth, Austerity, 35
• European bank exposure to periphery sovereign debt reached dangerous multiples of national GDP #corroborates (0.80) — Mark Blyth, Austerity, 239
• The European debt crisis resulted from banking losses, not sovereign overspending #corroborates (0.80) — Mark Blyth, Austerity, 40
• European banks transformed the euro’s risk-free sovereign debt into a leveraged carry trade #expands (0.75) — Mark Blyth, Austerity, 225
• Banking crises precede sovereign debt crises in 80 percent of cases #corroborates (0.72) — Mark Blyth, Austerity, 206