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Covid 19: a new challenge for the EMU

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  • Delatte, Anne-Laure
  • Guillaume, Alexis

Abstract

While the pandemic was an exogenous shock leading to increasing sovereign debt across the board, the dynamics of sovereign risk premiums has been heterogeneous in the Euro Area (EA). 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) resiliency to COVID shock depended on initial fiscal situation, robustness of the banking sector and healthcare capacity; 2) during the crisis, ECB speeches were a game changer and had a much larger contribution than actual securities purchase programs; 3) the coordination of the European Council also contributed to narrow down the spread but the effect was partly compensated by the implementation of financial assistance based on loans which contributed to increase the spreads.

Suggested Citation

  • Delatte, Anne-Laure & Guillaume, Alexis, 2020. "Covid 19: a new challenge for the EMU," CEPR Discussion Papers 14848, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:14848
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    References listed on IDEAS

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    1. Costantini, Mauro & Fragetta, Matteo & Melina, Giovanni, 2014. "Determinants of sovereign bond yield spreads in the EMU: An optimal currency area perspective," European Economic Review, Elsevier, vol. 70(C), pages 337-349.
    2. 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.
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    4. António Afonso & João Tovar Jalles & Mina Kazemi, 2019. "The Effects of Macroeconomic, Fiscal and Monetary Policy Announcements on Sovereign Bond Spreads: An Event Study from the EMU," Working Papers REM 2019/67, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    5. Anne-Laure Delatte & Julien Fouquau & Richard Portes, 2017. "Regime-Dependent Sovereign Risk Pricing During the Euro Crisis," Review of Finance, European Finance Association, vol. 21(1), pages 363-385.
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    9. Afonso, António & Tovar Jalles, João, 2019. "Quantitative easing and sovereign yield spreads: Euro-area time-varying evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 58(C), pages 208-224.
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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Economic policy > Money and monetary policy

    More about this item

    Keywords

    COVID; European Monetary Union; Event studies; sovereign risk;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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