Risks of high sovereign debt and persistent low interest rates  The European debt crisis has been the crucial event of the past few months. Its onset in the early summer of this year placed European financial stability in acute danger. The response of governments and central banks was rapid and on a massive scale, thus preventing an escalation of the crisis.
Our “heat map” shows the increasing risk in the European government bonds segment (Figure 1): since the previous year, the “traffic lights” have jumped from green to red. Yet, it is possible to identify positive developments, too. Tensions in the interbank market have eased, for example, not least because the banks are now hoarding significantly less liquidity.