EU Covid policies resurrect sovereign doom loop fears

Eurozone banks’ holdings of sovereign bonds issued by their home governments could increase by half over the next two years, as states sell increasing amounts of debt to recover from the coronavirus crisis. This will bind banks and sovereigns closer together, perhaps giving rise to a new iteration of the so-called ‘doom loop’ – the corrosive relationship in which government bond-laden lenders weigh on the creditworthiness of their host countries, imperiling the survival of both.

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