Covid 19: a new challenge for the EMU

Anne-Laure Delatte and Alexis Guillaume

Working Papers from CEPII research center

Abstract: Although the pandemic was an exogenous shock, it triggered portfolio rebalancing in the Euro Area (EA) implying a divergence of sovereign risk premia in the first phase of the crisis eventually followed by a narrowing of the spreads. We estimate the determinants of sovereign bond spreads in the EA during the pandemic from January 2 2020 to May 25 2020. We find that: 1) the countries’ resilience to the COVID shock depended on healthcare capacity, the strength of the banking sector and the fiscal outlook; 2) during the crisis, ECB speeches were a game changer and made a much greater contribution than securities purchase programs; 3) coordination by the European Council also helped to reduce the spreads but the effect was partly offset by loan-based financial assistance programs

Keywords: Sovereign Risk; European Monetary Union; Covid; Public Policy (search for similar items in EconPapers)
JEL-codes: F30 F45 H63 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-cba, nep-eec and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Working Paper: Covid 19: a new challenge for the EMU (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepidt:2020-08

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