The Eurozone Membership Impact on Sovereign Creditworthiness

74 Pages Posted: 27 Feb 2021

See all articles by Rangarajan K. Sundaram

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance

Songtao Wang

Shanghai Jiao Tong University

Date Written: December 10, 2020

Abstract

We examine the impact of eurozone membership on sovereign creditworthiness over the period 1996-2017. We find that: (a) membership significantly improved sovereign creditworthiness, on average by well over one ratings notch, over this period; (b) the ratings boost was significantly higher in the pre-crisis period (with countries in the periphery of the eurozone being the principal beneficiaries), but declined sharply after 2010; and (c) financial integration between member states is the principal driver of the improved creditworthiness. We also describe a number of other findings including an "entry" effect from joining the eurozone, and lowered borrowing costs (as measured by CDS spreads) in line with the ratings boost.

Keywords: Eurozone, Sovereign Credit Ratings, Risk Sharing, Financial Integration, Trade.

JEL Classification: F45, G15.

Suggested Citation

Sundaram, Rangarajan K. and Wang, Songtao, The Eurozone Membership Impact on Sovereign Creditworthiness (December 10, 2020). Available at SSRN: https://ssrn.com/abstract=3758003 or http://dx.doi.org/10.2139/ssrn.3758003

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0308 (Phone)
212-995-4233 (Fax)

Songtao Wang (Contact Author)

Shanghai Jiao Tong University ( email )

1954 Huashan Road
Shanghai, Shanghai 200030
China

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