A1 - Anne-Laure Delatte
A1 - Alexis Guillaume
TI - Covid 19: a new challenge for the EMU
IS - 2020-08
T3 - Working Papers
KW - Sovereign Risk
KW - European Monetary Union
KW - Covid
KW - Public Policy
N2 -
Although the pandemic was an exogenous shock, it triggered portfolio rebalancing in the Euro Area (EA) implying a divergence of sovereign risk premia in the first phase of the crisis eventually followed by a narrowing of the spreads. We estimate the determinants of sovereign bond spreads in the EA during the pandemic from January 2 2020 to May 25 2020. We find that: 1) the countries’ resilience to the COVID shock depended on healthcare capacity, the strength of the banking sector and the fiscal outlook; 2) during the crisis, ECB speeches were a game changer and made a much greater contribution than securities purchase programs; 3) coordination by the European Council also helped to reduce the spreads but the effect was partly offset by loan-based financial assistance programs.

ER -