Abstract
The economic crisis triggered by the coronavirus exposed the gaps in the European Monetary Union (EMU) governance, creating fears to repeat the sovereign debt crisis. In view of the magnitude of the crisis and the financial interdependence inside that union, strong policy coordination and central measures are crucial. The discussion on debt mutualisation continued to be based on clashing political positions. This chapter identifies the instability recorded in sovereign spreads at the beginning of the crisis and reviews the structural factors that caused it. We discuss the limited role of the ECB answer. So, the issue of Eurobonds is revisited, bringing new arguments since the EMU faces an exogenous shock. We sustain that the approval of the European Commission’s original Next Generation EU programme on the European Council in July 21, could anchor a new governance model for the EMU, based on the principle of subsidiarity and the refusal of moral hazard arguments.
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Notes
- 1.
Greek interest rates are only available from 1st April 1999, a total of 5509 observations.
- 2.
We estimated correlations for other time scales, with the maximum one corresponding to 250 trading days, with results being qualitatively similar. Due to space constraints they are not shown but are presented upon request.
- 3.
Bénassy-Quéré et al. (2018) propose a realistic approach to conclude the BU, as they labelled a Banking Union no-doom-loop.
- 4.
See https://www.bundesverfassungsgericht.de/SharedDocs/Pressemitteilungen/EN/2020/bvg20-032.html, accessed on 31st July.
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Acknowledgements
Paulo Ferreira and Andreia Dionísio acknowledge the financial support of Fundação para a Ciência e a Tecnologia (grants UIDB/05064/2020 and UIDB/04007/2020).
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Caetano, J., Ferreira, P., Dionísio, A. (2021). Searching for a New Balance for the Eurozone Governance in the Aftermath of the Coronavirus Crisis. In: Caetano, J., Vieira, I., Caleiro, A. (eds) New Challenges for the Eurozone Governance. Springer, Cham. https://doi.org/10.1007/978-3-030-62372-2_6
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