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Speculative Eurozone Attacks and Departure Strategies

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  • Stefan Homburg

Abstract

This article shows that the eurozone payment system does not effectively protect member states from speculative attacks. Suspicion of a departure from the common currency induces a terminal outflow of central bank money in weaker member states. TARGET2 cannot inhibit this drain but only protects central bank assets. Evidence presented here suggests that a run on Italy is already on the way. The article also considers departure strategies of strong and weak member states and the distributive effects of an orderly eurozone dissolution. (JEL codes: E52, E58, and F45)

Suggested Citation

  • Stefan Homburg, 2019. "Speculative Eurozone Attacks and Departure Strategies," CESifo Economic Studies, CESifo, vol. 65(1), pages 1-15.
    • Handle: RePEc:oup:cesifo:v:65:y:2019:i:1:p:1-15.
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    File URL: http://hdl.handle.net/10.1093/cesifo/ify029
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    References listed on IDEAS

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    1. Ulrich Bindseil & Philipp Johann König, 2012. "TARGET2 and the European Sovereign Debt Crisis," Credit and Capital Markets, Credit and Capital Markets, vol. 45(2), pages 135-174.
    2. Stefan Homburg, 2011. "Anmerkungen zum Target2-Streit," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(16), pages 46-50, September.
    3. Sven Steinkamp & Aaron Tornell & Frank Westermann, 2017. "The Euro Area’s Common Pool Problem Revisited: Has the Single Supervisory Mechanism Ameliorated Forbearance and Evergreening?," IEER Working Papers 107, Institute of Empirical Economic Research, Osnabrueck University, revised 06 Oct 2017.
    4. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    5. Steiner, Andreas & Steinkamp, Sven & Westermann, Frank, 2019. "Exit strategies, capital flight and speculative attacks: Europe's version of the trilemma," European Journal of Political Economy, Elsevier, vol. 59(C), pages 83-96.
    6. repec:ces:ifodic:v:16:y:2018:i:3:p:50000000003757 is not listed on IDEAS
    7. Alexander L. Wolman, 2013. "Federal Reserve Interdistrict Settlement," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 117-141.
    8. Benjamin Born & Teresa Buchen & Kai Carstensen & Christian Grimme & Michael Kleemann & Klaus Wohlrabe & Timo Wollmershäuser, 2012. "Austritt Griechenlands aus der Europäischen Währungsunion: Historische Erfahrungen, makroökonomische Konsequenzen und organisatorische Umsetzung," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 65(10), pages 09-37, May.
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    Cited by:

    1. Steiner, Andreas & Steinkamp, Sven & Westermann, Frank, 2019. "Exit strategies, capital flight and speculative attacks: Europe's version of the trilemma," European Journal of Political Economy, Elsevier, vol. 59(C), pages 83-96.
    2. Heikki Oksanen, 2019. "Reforming the Euro Pragmatically: Towards Sustainable Fiscal Policy and a Revamped Eurosystem," CESifo Working Paper Series 7912, CESifo.

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    More about this item

    Keywords

    : currency speculation; TARGET2; eurozone; Italexit; Dexit; trilemma;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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