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Posts tagged Sovereign default
The Future of the Euro

In 2012, the ECB faced down a mortal threat to the euro: fears of redenomination (the re-introduction of domestic currencies) were feeding a run away from banks in the geographic periphery of the euro area and into German banks. Since President Mario Draghi spoke in London that July, the ECB has done things that once seemed unimaginable, helping to support the euro and secure price stability.

So far, it has been enough. But can the ECB really do “whatever it takes”? Ultimately, monetary stability requires political support. Without fiscal cooperation, no central bank can maintain the value of its currency. In a monetary union, stability also requires a modicum of cooperation among governments.

Recent developments in France have revived concerns about redenomination risk and the future of the euro....

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Steve Cecchetti and Kim SchoenholtzEuro area, EMU, OMT, LTRO, Political union, Monetary union, ECB, French election, Sovereign risk, Sovereign yield spread, Target2, Financial crisis, Bank runs, European Union, Credit rating, Sovereign default
What should Greece do?

Greece faces a stark choice: stay in the euro and implement the policies demanded by its creditors or exit and re-introduce its own national currency. The dimensions of this decision go far beyond economics, affecting Greece’s political and cultural identity for generations. Yet, even in a narrow sense – determining which option will lead to the best economic outcome for Greeks – the decision is complex and fraught with uncertainty...

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Steve Cecchetti and Kim SchoenholtzGreece, Euro, ECB, EMU, Argentina, Sovereign default, Competitiveness, Real depreciation, Inflation, Financial crisis
Update on Target2 Balances: Limited progress 
Observers of the euro-area financial crisis typically focus on the yield spreads on peripheral government long-term bonds (compared to German yields) as the “fever thermometer” of the crisis. On that basis (see chart below), the crisis looks like it is over: after peaking in 2012, spreads rapidly receded following European Central Bank (ECB) President Mario Draghi’s promise to do “whatever it takes” to save the euro. Indeed, in Ireland, Italy, and Spain, yields themselves have now sunk to the lowest levels since the euro was created in 1999...
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Steve Cecchetti and Kim SchoenholtzECB, Sovereign default, Euro-area crisis, Target2, Bank runs