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Sovereign Default and the Euro
Author(s)
Date Issued
2013-07
Date Available
2013-07-30T11:26:05Z
Abstract
The introduction of the euro meant that countries with sovereign debt problems could not use monetisation and devaluation as a way to prevent default. The institutional structures of the euro were also widely thought to prevent a country in difficulties being bailed out by other euro members or having its sovereign debt purchased by the ECB.
Despite these restrictions, there was relatively little discussion about sovereign default in pre-EMU debates among economists and financial markets priced in almost no default risk in the pre-crisis years. The crisis has seen bailouts and bond purchases by the ECB but there has also been a sovereign default inside the euro and further defaults seem likely.
The introduction of the euro was intended to bring greater stability by ending devaluations triggered by self-fulfilling runs on a currency. While this particular scenario can no longer happen, this paper discusses mechanisms whereby expectations
that a country may leave the euro can lead to this outcome occurring.
Sponsorship
Not applicable
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Series
UCD Centre for Economic Research Working Paper Series
WP13/09
Keywords
Web versions
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
File(s)
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