Abstract
This study examines the channels of credit risk contagion among European countries while focusing on the trade, financial, economic, and political pathways that transmitted credit risk during three major crises: the Global Financial Crisis (GFC), the European debt crisis (EDC), and the COVID-19 crisis. Employing spatial econometric models, particularly the Spatial Autoregressive (SAR) model, the research identifies patterns of credit risk spillover and highlights the unique transmission dynamics of region-specific crisis. The analysis reveals that contagion channels, especially trade, financial, and economic linkages, were more pronounced during the European debt crisis than during the GFC and Covid-19 pandemic. This heightened credit risk contagion is attributed to the crisis's idiosyncratic nature, which concentrated vulnerabilities within Europe due to interconnected financial systems, trade dependencies, and close economic ties. Unlike with the broader and global crisis, region-specific shocks intensified cross-border credit risk spillovers that were facilitated by structural interdependencies and geographic proximity within Europe. The findings underscore that credit risk contagion is often amplified by localised shocks within economically integrated regions because shared vulnerabilities allow for rapid transmission. This research emphasises the need for policymakers to strengthen regional safety nets, establish coordinated crisis response mechanisms, and reduce dependency on regional trade and financial connections. For investors, it suggests diversification beyond regionally integrated markets to mitigate exposure to European-specific contagion risks.