H52, I2, J61, R23,

The intensity of the euro crisis has been reflected in significant increases in sovereign bond yields in the most troubled countries. This has triggered a debate over whether this increase can be attributed solely to fundamental factors or whether part of the increase represents redenomination risk that one or more countries will drop out of the European Monetary Union and reintroduce their own national currencies. Using a novel market‐based indicator from the virtual prediction market Intrade, this paper explores whether such systemic risk is present in the yield spreads of nine euro‐area countries. We find that redenomination risk has played a role in the determination of sovereign yields, and that this risk is related to the expected valuations of newly introduced currencies: those of Portugal, Ireland, Spain and Italy are expected to depreciate, while newly introduced currencies of other countries are expected to appreciate following a break‐up of the EMU. ‘Risk premia that are related to fears of the reversibility of the Euro are unacceptable, and they need to be addressed in a fundamental manner.’ (ECB President Mario Draghi, August 2012) ‘Es gibt fundamentale Zweifel der Märkte an der Sicherheit der Währungsunion.’ There are fundamental doubts on the financial markets about the integrity of the [European] monetary union. (Bundesbank President Jens Weidmann, 10 July 2012)

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractIn this paper, we assess the impact of major German structural reforms from 1999 to 2008 on key macroeconomic variables within a two-country monetary union DSGE model. By many, these reforms, especially the Hartz reforms on the labor market, are considered to be the root of thereafter observed imbalances in the Euro Area. We find that, in terms of German GDP, consumption, investment and (un)employment, the reforms were a clear success albeit the impact on the German trade balance and the current account was only minor. Most importantly, the rest of the Euro Area benefited from positive spillover effects. Hence, our analysis suggests that the reforms cannot be held responsible for the currently observed macroeconomic imbalances within the Euro Area.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe European Banking Union is a major step forward in fixing major deficiencies in the institutional framework of the Euro area. The absence of effective banking supervision and resolution powers at the European level promoted excessive private risk-taking in the up-run to the Euro crisis. Effective private risk sharing once risks materialized has been hampered. A properly designed Banking Union facilitates and improves private risk sharing, and it is thus a necessary institutional complement to a monetary union. Yet, the institutional framework of the Banking Union needs further strengthening in three regards. First, the supervisory framework needs to ensure uniform supervisory standards for all banks, including those located in non-Euro area countries. Also, conflicts of interest between monetary policy and banking supervision need to be mitigated. Second, bank resolution suffers from a highly complex governance structure. Restructuring and bail-in rules allow for a high degree of discretion at the level of the resolution authority. We propose to introduce a statutory systemic risk exception, by which the exercise of discretion would be reduced, thereby strengthening the credibility of the bail-in. Third, in order to enhance the credibility of creditor involvement, fiscal backstops and ex-ante specified cross-border burden-sharing agreements are needed.