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The EMU sovereign debt crisis: fundamentals, expectations and contagion

Arghyrou, Michael Georgiou and Kontonikas, Alexandros 2011. The EMU sovereign debt crisis: fundamentals, expectations and contagion. [Project Report]. Economic Papers, vol. 436. European Commission. Available at: http://ec.europa.eu/economy_finance/publications/e...

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Abstract

We offer a detailed empirical investigation of the European sovereign debt crisis based on the theoretical model by Arghyrou and Tsoukalas (2010). We find evidence of a marked shift in market pricing behaviour from a ‘convergence-trade’ model before August 2007 to one driven by macro-fundamentals and international risk thereafter. The majority of EMU countries have experienced contagion from Greece. There is no evidence of significant speculation effects originating from CDS markets. Finally, the escalation of the Greek debt crisis since November 2009 is confirmed as the result of an unfavourable shift in country specific market expectations. Our findings highlight the necessity of structural, competitiveness-inducing reforms in periphery EMU countries and institutional reforms at the EMU level enhancing intra-EMU economic monitoring and policy co-ordination.

Item Type: Monograph (Project Report)
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HC Economic History and Conditions
Publisher: European Commission
Funders: European Commission
Date of First Compliant Deposit: 30 March 2016
Last Modified: 04 Jun 2017 08:47
URI: http://orca-mwe.cf.ac.uk/id/eprint/85007

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