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Saving the Euro: Self-fulfilling Crisis and the “Draghi Put”

In: Life After Debt

Author

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  • Marcus Miller
  • Lei Zhang

Abstract

Writing in 2011, Paul De Grauwe noted the contrast between the alacrity of the ECB in providing liquidity in the banking crisis of 2008–09 and its reluctance to do so in the subsequent sovereign debt crisis: Things were very different when the sovereign debt crisis erupted in 2010. This time the ECB was gripped by hesitation. A stop-and-go policy ensued in which it provided liquidity in the government bond markets at some moments and withdrew it at others. When the crisis hit Spain and Italy in July 2011, the ECB was compelled again to provide liquidity in the government bond markets. (De Grauwe, 2011a)

Suggested Citation

  • Marcus Miller & Lei Zhang, 2014. "Saving the Euro: Self-fulfilling Crisis and the “Draghi Put”," International Economic Association Series, in: Joseph E. Stiglitz & Daniel Heymann (ed.), Life After Debt, chapter 4, pages 227-241, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-137-41148-8_14
    DOI: 10.1057/9781137411488_14
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    References listed on IDEAS

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    1. David Barr & Oliver Bush & Alex Pienkowski, 2014. "GDP-linked Bonds and Sovereign Default," International Economic Association Series, in: Joseph E. Stiglitz & Daniel Heymann (ed.), Life After Debt, chapter 4, pages 246-275, Palgrave Macmillan.
    2. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
    3. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-661, September.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    5. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Chapter 1," MPRA Paper 17452, University Library of Munich, Germany.
    6. Marcus H. Miller, 2002. "Sovereign Debt Restructuring: New Articles, New Contracts--Or No Change?," Policy Briefs PB02-03, Peterson Institute for International Economics.
    7. Giancarlo Corsetti & Luca Dedola, 2016. "The Mystery of the Printing Press: Monetary Policy and Self-Fulfilling Debt Crises," Journal of the European Economic Association, European Economic Association, vol. 14(6), pages 1329-1371.
    8. Paul De Grauwe, 2013. "The European Central Bank as Lender of Last Resort in the Government Bond Markets," CESifo Economic Studies, CESifo Group, vol. 59(3), pages 520-535, September.
    9. Bulow, Jeremy & Rogoff, Kenneth, 1990. "Cleaning Up Third World Debt without Getting Taken to the Cleaners," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 31-42, Winter.
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    Cited by:

    1. Blot, Christophe & Ducoudré, Bruno & Timbeau, Xavier, 2016. "Sovereign debt spread and default in a model with self-fulfilling prophecies and asymmetric information," Journal of Macroeconomics, Elsevier, vol. 47(PB), pages 281-299.
    2. Matthias Fengler & Winfried Koeniger & Stephan Minger, 2024. "The Transmission of Monetary Policy to the Cost of Hedging," CESifo Working Paper Series 11556, CESifo.

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    More about this item

    Keywords

    Credit Default Swap; Bond Market; Sovereign Debt; Euro Zone; Credit Default Swap Spread;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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