The internationalization of financial markets is one of the focal points in the discussion about recent globalization trends. These discussions suggest that capital can move freely between countries. However, there is ample evidence that national borders do matter and that there are many...

"If interest rates (country spreads) rise, debt can rapidly be subject to a snowball effect, which then becomes self-fulfilling with regard to the fundamentals themselves. This is a market imperfection, because we cannot be confident that the unaided market will choose the good equilibrium' over...