Repatriation of Debt in the Euro Crisis: Evidence for the Secondary Market Theory

Filippo Brutti and Philip U. Sauré



JEL classification
F34, F36, G01, G11, G21

Debt Repatriation, Sovereign Risk, Secondary Markets, Euro Crisis, Portfolio Home-Bias


The Euro Crisis has stopped the process of the European financial integration and triggered a strong repatriation of debt from foreign to domestic investors. We investigate this empirical pattern in light of competing theories of cross-border portfolio allocation. Three empirical regularities stand out: i) repatriation of debt occurred mainly in crisis countries; ii) repatriation affected mainly public debt; iii) public debt of crisis countries was reallocated to politically influential countries within the Euro Area. Standard theories are in line with pattern (i) at best. We argue that the full picture constitutes evidence for the "secondary market theory" of sovereign debt.