Sovereign Credit Risk
The Greek default on the government debt issued by the country clearly has shown that today sovereign credit risk also is of high relevance for investors in bonds sold by industrialized countries. The current ECB/EBA stress test, for example, is a clear indication that sovereign credit risk currently has to be regarded as one of the most important topics for the financial services industry in Europe. There are numerous facets that are of relevance. Risk management issues, for example, are very important from an applied perspective. Theoretical problems that do matter in this context do include the problems originating from the complex interaction between sovereign credit risk, redenomination risk and liquidity risk. Sovereign credit risk also could matter for monetary policymakers. Moreover, the insurance industry has to cope with the problem that government bonds today are not free of credit risk anymore.
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