There is clear evidence that domestic investors played such contrarian role during the EU sovereign debt crisis, buying sovereign bonds as foreign investors were fleeing (Fig. 2 again for the Italian case; similar patterns have been documented for Spain). 10 Imposing risk weights or setting large exposure limits on domestic sovereign exposures would impair this shock-absorption ability.
When the financial crisis peaked in the autumn of 2008, the krone – like other small currencies – came under very strong pressure. Combined with a number of crisis measures, the high degree of credibility helped to ensure that Denmark weathered the crisis.