EA sovereign risk premiums reached an all time high in November 2011. LTROs eased funding pressures in early 2012 but do not address underlying solvency issues and funding stresses have returned. Unsurprisingly, recent movements in sovereign risk premiums reflect predominantly EA risk commonalities. The key policy implication is that market concerns may not fully dissipate until the European policy framework as a whole (banking supervisory framework, fiscal liability sharing scheme, role of ECB as lender-of-last resort, etc.) is strengthened, thereby reducing the market perception of EA-wide risks. In terms of spillover risks to the rest of the world, increased EA sovereign risk is likely to worsen significantly the perceived credit riskiness of EA financial corporate bonds—given feedback loops between sovereign and financial balance sheets. In turn, if (and only if) global risk repricing is factored in, volatility spillovers from the EA financial sector have the potential to raise significantly not only the perceived riskiness of EA nonfinancial corporate bonds, but also that of EM sovereigns and US financial and nonfinancial corporate.