Speculative Eurozone Attacks and Departure Strategies. (7th February 2019)

• Record Type: Journal Article
• Authors: Homburg, Stefan
• Is Part Of: CESifo economic studies. Volume 65:Number 1(2019:Mar.)
• Page Start: 1
• Page End: 15
• Publication Date: 2019-02-07
• Subjects: : currency speculation -- TARGET2 -- eurozone -- Italexit -- Dexit -- trilemma; Economics -- Periodicals; 330.5
• DOI: 10.1093/cesifo/ify029
• Languages: English
• ISSNs: 1610-241X

Abstract

Abstract: This article shows that the eurozone payment system does not effectively protect member states from speculative attacks. Suspicion of a departure from the common currency induces a terminal outflow of central bank money in weaker member states. TARGET2 cannot inhibit this drain but only protects central bank assets. Evidence presented here suggests that a run on Italy is already on the way. The article also considers departure strategies of strong and weak member states and the distributive effects of an orderly eurozone dissolution. (JEL codes: E52, E58, and F45)