Previous research regarding the European debt crisis has mostly focused on the purely economic aspects of the crisis. However, there is a strong “Protestant-Catholic” dimension in Europe, where historically Protestant countries are more prosperous than their Catholic and Orthodox counterparts. This has especially been a fact since early 2010, when several countries within the European Union had their credit ratings downgraded. Is this phenomenon merely a coincidence? Or could the roots of the recent troubles in Europe have a basis in historic religions? To tackle this question, Max Webers ́s 110 year old study The Protestant Ethic and the Spirit of Capitalism is brought back into light and used as a tool for analysis of the crisis. The results show that not only are Protestant countries in general more prosperous, but they also have lower corruption and their citizens have a higher level of trust towards the government. These results are in line with what Weber called the “bureaucratization” and the “rationalization” of the society from a traditional one into a rationalized one. According to Weber, the “protestant work ethic” had certain features that helped create propitious preconditions for rationalization, which were extremely benign for the rise of capitalism in the Western world. Furthermore, the results in this studies show that the historic religions have had a lasting impact on national politics within Europe and that they remain a driving force behind european culture. Historically Protestant countries are therefore in less risk of getting in debt and capitalism still have a better chance of success in these countries.

The inception of the economic and monetary union (EMU) in January 1999 created new conditions for government debt. By eliminating currency exchange rate risk between the member states, the hope was to achieve a more sustainable and integrated government debt market in the euro area. Even though we witnessed relative stability for several years, the financial turmoil starting in 2008 and more so the European government debt crisis starting in late 2009 led to higher and more volatile yield differentials between the member states. This thesis explores the European government bond market to find the fundamental determinants of yield spreads and to see if the impact of these determinants changed since the start of the debt crisis. Financial theory suggests that there are three main fundamental drivers of government bond yields and as such lay the framework for finding the explanatory variables. By using a fixed-effect panel regression model the empirical findings of this study show that credit risk, liquidity risk, risk aversion all play a significant role in explaining yield spreads in the euro area. Furthermore, we find evidence of increasing marginal effects of all explanatory variables except for global risk aversion since the start of the crisis. We also consider the effect of the statement by the ECB President in 2012 where the ECB committed to quantitative easing as an important reason for the decrease in yields and illustrate this by expanding our model. The contribution of this study is centered around the use of longer timeseries data that provides the significant advantage of fully incorporating the European debt crisis which is something that previous studies were lacking. / Införandet av den ekonomiska och monetära unionen (EMU) i januari 1999 skapade nya villkor för statsskuldmarknaden. Genom att eliminera valutakursrisk mellan medlemsstaterna var förhoppningen att skapa en mer hållbar och integrerad statsskuldmarknad i euroområdet. Trots flera år av relativ stabilitet ledde finanskrisen 2008 och eurokrisen i slutet av 2009 till högre och mer volatila ränteskillnader mellan medlemsstaterna. Denna uppsats undersöker den europeiska obligationsmarknaden för att hitta de grundläggande determinanterna för räntespreads och för att se om effekterna av dessa determinanter har förändrats sedan skuldkrisens början. Genom att använda en “fixed-effects” regressionsmodell visar de empiriska resultaten att kreditrisk, likviditetsrisk, riskaversion spelar en viktig roll för att förklara räntespreads i euroområdet. Vidare finner vi bevis på ökande marginaleffekter för alla determinanter med undantag för global riskaversion sedan krisens början. Vi undersöker också effekten av ECB-Presidentens uttalande 2012 som indikerade en hängivenhet till kvantitativ lättnad som en viktig orsak till fallet i räntespread och illustrerar detta genom att utöka vår modell. Bidraget från denna studie är centrerad kring användandet av längre tidsseriedata som ger den stora fördelen att inkorporera den europeiska skuldkrisen vilket är något som tidigare studier ofta saknat.