The ‘doom loop’, or ‘sovereign–bank nexus’, has been identified as a key driver of the European debt crisis. It has been back in the spotlight recently, as the response to the public health crisis and the Russian invasion of Ukraine have caused sovereign debt levels to balloon. This column explores the impact of default risk on policies aimed at breaking the doom loop. According to the authors’ model, factoring in default risk has major implications for the choice and calibration of such