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Balance Sheets after the EMU: an Assessment of the Redenomination Risk

Author

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  • Cédric Durand

    () (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)

  • Sébastien Villemot

    (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

Abstract

The probability of a partial or complete break-up of the euro has risen over the last years. Such an event could create a balance sheet problem for economic agents, since the redenomination process could introduce significant currency mismatches between the asset and liability sides. We propose a new assessment of this redenomination risk, by country and by main institutional sector, for two scenarios: a single country exit and a complete break-up. Our main conclusion is that, even though the problem has to be taken seriously, its order of magnitude should not be exaggerated. Only a few sectors are at significant risk: public debts of Greece and Portugal, financial sectors of Greece, Ireland and Luxembourg. In particular, the consequences for the non- financial private sector should be manageable. We provide policy recommendations aiming at limiting the risk ex ante, and mitigating the consequences ex post.

Suggested Citation

  • Cédric Durand & Sébastien Villemot, 2016. "Balance Sheets after the EMU: an Assessment of the Redenomination Risk," CEPN Working Papers hal-01383691, HAL.
  • Handle: RePEc:hal:cepnwp:hal-01383691
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01383691
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    References listed on IDEAS

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    1. Gelos, R. Gaston & Sahay, Ratna & Sandleris, Guido, 2011. "Sovereign borrowing by developing countries: What determines market access?," Journal of International Economics, Elsevier, vol. 83(2), pages 243-254, March.
    2. Se-Eun Jeong & Jacques Mazier & Jamel Saadaoui, 2010. "Exchange Rate Misalignments at World and European Levels: a FEER Approach," International Economics, CEPII research center, issue 121, pages 25-58.
    3. Stephen Cecchetti & Robert McCauley & Patrick McGuire, 2012. "Interpreting TARGET2 balances," BIS Working Papers 393, Bank for International Settlements.
    4. Hoyt Bleakley & Kevin Cowan, 2008. "Corporate Dollar Debt and Depreciations: Much Ado About Nothing?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 612-626, November.
    5. Whittaker, John, 2011. "Eurosystem debts, Greece, and the role of banknotes," MPRA Paper 38406, University Library of Munich, Germany.
    6. Branimir Gruic & Philip Wooldridge, 2012. "Enhancements to the BIS debt securities statistics," BIS Quarterly Review, Bank for International Settlements, December.
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    Cited by:

    1. repec:eee:ecmode:v:64:y:2017:i:c:p:524-538 is not listed on IDEAS
    2. Sergio Cesaratto, 2017. "The nature of the eurocrisis. A reply to Febrero, Uxò and Bermejo," Department of Economics University of Siena 752, Department of Economics, University of Siena.
    3. Sergio Cesaratto, 2017. "Beyond the traditional monetary circuit: endogenous money, finance and the theory of long-period effective demand," Department of Economics University of Siena 757, Department of Economics, University of Siena.

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    Keywords

    Balance sheets; Euro;

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