Abstract We offer a detailed empirical investigation of the EMU sovereign-debt crisis. We find a marked shift in market pricing behaviour from a ‘convergence-trade’ model before August 2007 to one driven by macro-fundamentals and international risk thereafter. We find evidence of contagion effects, particularly among EMU periphery countries. The EMU debt crisis is divided into an early and current crisis period. Unlike the former where contagion was mainly originating from Greece, the latter involves multiple sources of contagion. Finally, the escalation of the Greek debt crisis since November 2009 is due to an unfavourable shift in country-specific market expectations.