Trade connections with troubled economies increase risk of joint default in euro area.
The study looked at why some countries in Europe were at risk of defaulting on their debts during the financial crisis from 2007 to 2011. By analyzing financial contracts, they found that financial connections were only a big problem for struggling countries on the edge of Europe. Instead, the main way debt problems spread was through trade relationships. Countries that traded a lot with struggling economies were more likely to face financial trouble themselves.