This work investigates the bank-sovereign risk transmission across EMU countries, assessing how sovereign risk in Italian government bonds can affect the sovereign and credit risk of non-stressed countries. We employ a GVAR technique and measure spatial proximity by using the cross-country “distance” in debt-to-GDP ratio. Our results confirm the hypothesis of a sovereign-bank loop: a shock in Credit Default Swaps spread of one country propagates to other CDS and bank indices. The effects are stronger in more fragile financial systems. Overall, our findings highlight the importance of spillover effects and suggest a monetary policy tailored on “back-door” propagation of shocks.