The Eurozone Membership Impact on Sovereign Creditworthiness
74 Pages Posted: 27 Feb 2021
Date Written: December 10, 2020
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: Suggested Citation