This paper investigates the role that Eurobonds could play in making EMU stable in the long run. We establish that EMU's budgetary problems are not only caused by lack of budgetary discipline, but also by the large and sudden fiscal deterioration during the financial crisis. This type of shock...

The Excessive Deficit Procedure (EDP), central to the Stability and Growth Pact, is criticized for both its procyclical effects and – in contrast – a perceived lack of enforcement. To test its actual effects, we construct a real-time database of EDP recommendations and estimate augmented...

We study the dynamics of sovereign risk spillovers from (and between) Spain and Italy, before and after the ECB's announcement of the OMT program. We identify domestic Italian and Spanish sovereign risk shocks through an intraday event study. The shocks are used as external instruments in...

In the decade following the introduction of the euro, many Southern EMU members experienced sizeable capital inflows. We document how, instead of contributing to convergence, these flows mainly fueled growth of the nontradable sectors. We rationalize these developments using a tractable...

Enforcement of European fiscal rules, to a large extent, hinges on the fiscal forecasts prepared by the European Commission (EC). The reliability of these forecasts has received little attention in the literature, despite the fact that i) the forecasts have potentially far-reaching consequences...

This paper analyses the reforms in the architecture of EMU since the eruption of the euro crisis in 2010. We describe major weaknesses in the original set-up of EMU, such as lack of fiscal discipline, diverging financial cycles and competitiveness positions, and a lack of crisis instruments....