The European sovereign debt crisis was a major focus for international financial markets during 2010-2015. Economies fell into recession and financial market volatility was high. Critically analyze how the government debt problems initially faced by a few relatively small economies could trigger such a wide impact in financial markets. Your essay must be strongly focused on the impact on financial markets, not on other aspects of the European sovereign debt crisis, (i.e. there should be no discussion of banks, politics or macroeconomics). You can consider the impact of the crisis on any one or two of the following: equity markets, bond markets, money markets, derivatives markets and foreign exchange. Contagion (or spillover) across markets is an important theme to be included. The essay must include some theoretical content as well as practical considerations. You must demonstrate reading and research far beyond the material discussed in lectures. A minimum of ten references from academic journals is expected. Your essay will benefit significantly from the inclusion of insights from academic and practitioner research. Support your arguments with examples when appropriate. You should ensure careful citation of all paper and electronic sources of information, and include a list of references. (The references are not included in the word count).

In response to some student questions:

The focus should be on contagion/spillover and the channels through which such effects operate.

Your initial objective should be to collect a group of recent journal articles that provide evidence on these spillovers in financial markets.

It is not true to state that sovereign rating actions started the crisis. Have a careful look at what happened in Greece in late 2009, and you will come to a different view.

The essay is not directly concerned with sovereign rating actions. They are relevant, but should not be the only focus.