The Euro and the Geography of International Debt Flows
43 Pages Posted: 2 Jun 2014
There are 2 versions of this paper
The Euro and the Geography of International Debt Flows
Date Written: April 2014
Abstract
Greater financial integration between core and peripheral EMU members had an effect on both sets of countries. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms. Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. The result has been asset-price bubbles and collapses in some of the peripheral countries, area-wide banking crisis, and sovereign debt problems. We analyze the geography of international debt flows using multiple data sources and provide evidence that after the euro's introduction, Core EMU countries increased their borrowing from outside of EMU and their lending to the EMU periphery.
Keywords: EMU, euro crisis, global imbalances, international banking, international debt
JEL Classification: F32, F34, F36
Suggested Citation: Suggested Citation
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