Was the Krone a Safe Haven during the Sovereign Debt Crisis? - Part 1

The term "safe haven" is often used about assets that can protect investors from
losses during financial turmoil. If the value of an asset increases in connection
with financial turmoil, this is a sign that it is a safe haven. This article examines
whether the krone was a safe haven relative to the euro at the height of the
sovereign debt crisis in parts of the euro area from July 2011 to July 2012. During
this period, the krone strengthened against the euro, against the backdrop of
strengthening volatility in the financial markets. The development of the krone
relative to the euro during the sovereign debt crisis was unusual compared with
previous periods of financial turmoil. The situation during the sovereign debt
crisis was an extraordinary situation, since, on account of Denmark's fixedexchange-
rate policy, some investors saw the krone as an opportunity to hedge
the risk of a break-up of the euro. This was particularly notable in the market for
currency options between kroner and euro. All in all, the analysis in this article
indicates that the krone was a safe haven relative to the euro at the height of
the sovereign debt crisis from July 2011 to July 2012.