1 - 4 of 4
Number of results to display per page
Search Results
2. Self-Fulfilling Crises in the Eurozone: An Empirical Test
- Author:
- Paul De Grauwe and Yuemei Ji
- Publication Date:
- 06-2012
- Content Type:
- Working Paper
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- This paper tests the hypothesis that government bond markets in the eurozone are more fragile and more susceptible to self-fulfilling liquidity crises than in stand-alone countries. We find evidence that a significant part of the surge in the spreads of the PIGS countries (Portugal, Ireland, Greece and Spain) in the eurozone during 2010-11 was disconnected from underlying increases in the debt-to-GDP ratios and fiscal space variables, and was the result of negative self-fulfilling market sentiments that became very strong since the end of 2010. We argue that this can drive member countries of the eurozone into bad equilibria.
- Topic:
- Economics, Monetary Policy, and Financial Crisis
- Political Geography:
- Europe
3. What Germany should fear most is its own fear: An analysis of Target2 and current account imbalances
- Author:
- Paul De Grauwe and Yuemei Ji
- Publication Date:
- 09-2012
- Content Type:
- Working Paper
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- This paper analyzes two claims that have been made about the Target2 payment system. The first one is that this system has been used to support unsustainable current account deficits of Southern European countries. The second one is that the large accumulation of Target2 claims by the Bundesbank represents an unacceptable risk for Germany if the eurozone were to break up. We argue that these claims are unfounded. They also lead to unnecessary fears in Germany that make a solution of the eurozone crisis more difficult. Ultimately, this fear increases the risk of a break-up of the eurozone. Or to paraphrase Franklin Roosevelt, what Germany should fear most is simply its own fear.
- Topic:
- Economics, Regional Cooperation, Monetary Policy, and Financial Crisis
- Political Geography:
- Europe and Germany
4. Governance of a Fragile Eurozone
- Author:
- Paul De Grauwe
- Publication Date:
- 05-2011
- Content Type:
- Working Paper
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- When entering a monetary union, member countries change the nature of their sovereign debt in a fundamental way, i.e. they cease to have control over the currency in which their debt is issued. As a result, financial markets can force these countries' sovereigns into default. In this sense, the status of member countries of a monetary union is downgraded to that of an emerging economy. This makes the monetary union fragile and vulnerable to changing market sentiments. It also makes it possible that self-fulfilling multiple equilibria arise.
- Topic:
- Debt, Markets, Regional Cooperation, and Financial Crisis
- Political Geography:
- Europe