Willem Buiter, 01 October 2020

National central banks within the Eurosystem with substantial holdings of own risky sovereign debt are at material risk of default if their sovereign defaults, since the likelihood of recapitalisation of an insolvent national central bank by its defaulted sovereign is low.  Risk exposures of a national central bank that are out of line with the risk exposures of the consolidated Eurosystem are therefore an existential threat to the monetary union. This column discusses the key flaws in the design of the Eurosystem responsible for this threat and explores three approaches to reducing the insolvency risk of national central banks.

Peter Bofinger, 12 February 2016

The Eurozone is more crisis-prone than other major currency areas. This column suggests that due to its hybrid structure, the EZ is likely to remain crisis-prone in the near future. A main challenge is the specific insolvency risk to which the member states are exposed, which in the longer term it can only be eliminated by some form of debt mutualisation. Another challenge is that the EZ suffers from an insufficient coordination of fiscal policies and wage trends.

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