Managing the Fragility of the Eurozone
During this seminar Paul de Grauwe (Catholic University Leuven) will present: "Managing the Fragility of the Eurozone".
Time: 2011, Wednesday October 12, 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague
This seminar is held on a wednesday !
Presentation: Paul de Grauwe (Catholic University Leuven)
Discussant: Michiel Bijlsma (CPB)
Language: English
Registration: Please register by sending an email to seminars@cpb.nl.
Abstract subject: When entering a monetary union, member countries change the nature of their sovereign debt in a fundamental way, i.e. they cease to have control over the currency in which their debt is issued. As a result, financial markets can force these countries’ sovereigns into default. In this sense member countries of a monetary union are downgraded to the status of emerging economies. This makes the monetary union fragile and vulnerable to changing market sentiments. It also makes it possible that self-fulfilling multiple equilibria arise. I analyze the implications of this fragility for the governance of the Eurozone and argue that the ECB should also be the lender of last resort in the government bond markets of the monetary union, very much like the central banks in countries that issue debt in their own currencies are. This is necessary to prevent countries from being pushed into bad equilibria by self-fulfilling fears of liquidity crises in a monetary union. I also survey the different arguments that have been formulated by opponents of the view that the ECB should be the lender of last resort in the government bond markets.
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