Covid 19: A New Challenge for the Emu

27 Pages Posted: 16 Jun 2020 Last revised: 27 Jul 2020

See all articles by Anne Laure Delatte

Anne Laure Delatte

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Alexis Guillaume

Université Clermont Auvergne

Date Written: June 2020

Abstract

While the pandemic was an exogenous shock leading to increasing sovereign debt across the board, the dynamics of sovereign risk premiums has been heterogeneous in the Euro Area (EA). We estimate the determinants of sovereign bond spreads in the EA during the pandemic from January 2 2020 to May 25 2020. We find that: 1) resiliency to COVID shock depended on initial fiscal situation, robustness of the banking sector and healthcare capacity; 2) during the crisis, ECB speeches were a game changer and had a much larger contribution than actual securities purchase programs; 3) the coordination of the European Council also contributed to narrow down the spread but the effect was partly compensated by the implementation of financial assistance based on loans which contributed to increase the spreads.

Keywords: COVID, European Monetary Union, Event studies, sovereign risk

JEL Classification: F30, F45, H63

Suggested Citation

Delatte, Anne Laure and Guillaume, Alexis, Covid 19: A New Challenge for the Emu (June 2020). CEPR Discussion Paper No. DP14848, Available at SSRN: https://ssrn.com/abstract=3628168

Anne Laure Delatte (Contact Author)

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

9 rue Georges Pitard
Paris Cedex 15, F-75015
France

Alexis Guillaume

Université Clermont Auvergne ( email )

Clermont-Ferrand
France

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