The fragility of the Eurozone: has it disappeared?

Paul De Grauwe and Yuemei Ji ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We revisit the fragility of the Eurozone which arises because the sovereigns in the Eurozone issue debt in a currency (the euro) over which they have no control. This prevents them from giving a guarantee to bond holders that they will always be repaid at maturity. This fragility can trigger self-fulfilling liquidity crises, such as those that erupted during 2010–12. We document how this fragility has evolved over time and how it has been affected by the reforms in the governance of the Eurozone since the sovereign debt crisis of 2010–12. This will allow us to analyze the most recent episode that started with the emergence of the pandemic in 2020. The latter has, up to now, not led to a new debt crisis in the Eurozone, despite the fact that the shock produced by the pandemic was at least as large as the financial crisis of 2007–08. We document how during the pandemic the new governance of the Eurozone prevented this shock from leading to a new sovereign debt crisis. We end with a discussion of the prospects for the future and ask the question of whether the fragility of the Eurozone is a thing of the past.

JEL-codes: F3 G3 (search for similar items in EconPapers)
Date: 2022-02-01
New Economics Papers: this item is included in nep-mon and nep-opm
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Citations: View citations in EconPapers (9)

Published in Journal of International Money and Finance, 1, February, 2022, 120. ISSN: 0261-5606

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Journal Article: The fragility of the Eurozone: Has it disappeared? (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:112543

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