Alessandro Giovannini, Carl-Wolfram Horn, Francesco Paolo Mongelli, 10 January 2021

The economic fallout from the COVID-19 crisis has been asymmetric across euro area countries, leaving room for risk-sharing channels to operate. This column studies income risk-sharing in the euro area and finds that while it has so far been low, it was resilient throughout the crisis. Initial portfolio investment reverted quickly and intra-euro area cross-border portfolio investment exhibited low volatility. Only cross-border public flows have been limited. This suggests that the provision of unprecedented policy support has prevented private risk-sharing channels from collapsing, reducing the risk of a sudden stop in cross-border financial flows and a further exacerbation of the crisis.

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