I will discuss its meaning from a policy maker’s perspective against the background of the academic literature. I shall then dwell in some depth on the evidence of contagion phenomena and risks in the euro area government debt crisis. Next, I shall look at some historical episodes where sovereign contagion also played some role and see what we can learn from them.
In particular, necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity. Later in 2013 economic activity should gradually recover, supported by our accommodative monetary policy stance, the improvement in financial market confidence and reduced fragmentation, as well as a strengthening of global demand.