Fourth, the re-pricing of government debt also had a direct negative impact on the asset side of banks and therefore on their own perceived riskiness. In fact, since 2009, we can see a close relationship between measures of bank and sovereign credit risk. This sovereign-bank nexus constitutes a fundamental impediment to resolving the crisis in the euro area.
For example, the negative effects of onerous business conditions – like poor contract enforcement and lengthy bankruptcy procedures – are much stronger for new firms than for incumbent ones10.