IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Long Term Debt and the Political Support of a Monetary Union

  • Uhlig, Harald

This paper examines the role of long-term debt in political support for a monetary union or, more generally, an inflation-reduction policy. The central idea is that the decision on membership of the union leads to a redistribution between debtors and creditors, if they are holding long-term debt with a nominally fixed interest rate, as well as taxpayers. For example, if joining the union means a decrease in the inflation rate, creditors should favour joining while debtors should be against it. A government of a high-inflation country might strategically try to exploit this effect by selling more long-term debt denominated in its own currency at a fixed nominal rate rather than a foreign currency such as the dollar (or, almost equivalently, as floating-rate debt or rolled-over short-term debt) to its citizens. We show that the effect on political support is unclear. While the ‘creditor effect’ of increasing the number of agents holding domestically denominated debt helps generate support for joining the union, the ‘tax effect’ of having to raise more taxes in order to pay for the increased real-debt payments after a successful monetary union works in the opposite way. The paper then studies a number of special cases and ramifications; the case of Italy is examined more closely. The paper argues that recent debt-management policy in Italy probably eroded political support for actions aimed at enhancing EMU membership chances.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1603.

in new window

Date of creation: Mar 1997
Date of revision:
Handle: RePEc:cpr:ceprdp:1603
Contact details of provider: Postal:
Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.

Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Eijffinger, S.C.W. & Huizinga, H.P. & Lemmen, J.J.G., 1996. "Short-Term and Long-Term Government Debt and Nonresident Interest Withholding Taxes," Discussion Paper 1996-88, Tilburg University, Center for Economic Research.
  2. Cukierman Alex, 1992. "Central Bank Strategy, Credibility, And Independance: Theory And Evidence," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 3(4), pages 10, December.
  3. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  4. G Milesi-Feretti, 1991. "Do Good or Do Well? Public Debt Management in a Two-Party Economy," CEP Discussion Papers dp0053, Centre for Economic Performance, LSE.
  5. Henning Bohn, . "A Positive Theory of Foreign Currency Debt," Rodney L. White Center for Financial Research Working Papers 19-88, Wharton School Rodney L. White Center for Financial Research.
  6. Kenen,Peter B., 1995. "Economic and Monetary Union in Europe," Cambridge Books, Cambridge University Press, number 9780521558839, April.
  7. Alberto Giovannini, 1996. "The Debate on Money in Europe," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262071681, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:1603. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.