But there’s a huge problem if these expectations don’t materialise. And that was the moment when the banking crisis turned into a sovereign debt crisis. Yes. And once again it was a big shock.
This time it was German Chancellor Angela Merkel and French President Nicolas Sarkozy walking on the beach at Deauville in Normandy who agreed that the investors in government bonds – among which many banks – in the future would have to share in losses. Until then the financial system took it as a given that euro area government debt was always repaid.