Impact of the coronavirus pandemic crisis on the financial system in the eurozone

Abstract

The stress in the financial system in five eurozone countries (Germany, France, Italy, Portugal, and Spain) was not connected before the COVID‐19 pandemic crisis. Credit default swap premiums were priced independently, not incorporating the sovereign risk of the eurozone as a whole. However, during the period of pandemic crisis, the stress was connected in five countries. The financial market was cautious about the increased fiscal deficit caused by massive spending in the pandemic crisis, fearing that the deficit might cause increased risk in the financial system of the eurozone as a whole. The symptoms of financial crisis sprouted after the pandemic crisis started. We need to monitor whether countermeasures taken by European Central Bank (ECB) and European Union (EU) contribute to the stability of financial system in the eurozone.