We assess the role of financial linkages in the transmission of sovereign risk in the Euro Crisis. Building on the narrative approach by Romer and Romer (1989), we use
financial news to identify structural shocks in a vector autoregressive model of daily sovereign CDS premia for eleven European countries. To estimate how these shocks
transmit across borders, we use data on cross-country bank exposures to sovereign debt. Our results indicate that exposure to Greek sovereign debt and the debt of
Greek banks constitute important transmission channels. All else being equal, the transmission rate to the country with the greatest exposure to Greece (1.22 percent of GDP) has been roughly 46 percent higher than the rate to the country with the least exposure (0.08 percent of GDP).