Central Bank Design in a Non-optimal Currency Union A Lender of Last Resort for Government Debt?

Peter Spahn

No 201610, ROME Working Papers from ROME Network

Abstract: We analyze the benefits and costs of a non-euro country opting-in to the banking union. The decision to opt-in depends on the comparison between the assessment of the banking union attractiveness and the robustness of a national safety net. The benefits of opting-in are still only potential and uncertain, while costs are more tangible. Due to treaty constraints, noneuro countries participating in the banking union will not be on equal footing with euro area members. Analysis presented in the paper points out that reducing the weaknesses of the banking union and thus providing incentives for opting-in is not probable in the short term, mainly due to political constraints. Until a fully-fledged banking union with well-capitalized backstops is established it may be optimal for a non-euro country to join the banking union upon the euro adoption. Assessing first experiences with the functioning of the banking union and opt-in countries will be crucial for non-euro countries when deciding whether to opt-in.

Keywords: currency union; lender of last resort; central bank reserves; central bank budget constraint (search for similar items in EconPapers)
JEL-codes: E5 E6 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2016-10
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.rome-net.org/RePEc/rmn/wpaper/rome-wp-2016-10.pdf First version, 2016 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rmn:wpaper:201610

Access Statistics for this paper

More papers in ROME Working Papers from ROME Network
Bibliographic data for series maintained by Albrecht F. Michler ().