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

Listed author(s):
  • Cédric Durand

    ()

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

  • Sébastien Villemot

    (PSE - Paris-Jourdan Sciences Economiques - 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, PSE - Paris School of Economics)

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.

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Paper provided by HAL in its series CEPN Working Papers with number hal-01383691.

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Date of creation: 17 Oct 2016
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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  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. 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.
  3. 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.
  4. Whittaker, John, 2011. "Eurosystem debts, Greece, and the role of banknotes," MPRA Paper 38406, University Library of Munich, Germany.
  5. Stephen Cecchetti & Robert McCauley & Patrick McGuire, 2012. "Interpreting TARGET2 balances," BIS Working Papers 393, Bank for International Settlements.
  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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