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As EU leaders muddle through the Eurozone crisis, the debate about its root causes continues. CEPS Director Daniel Gros argues in this Policy Brief that the debate is important if we are to understand how to prevent future crises. In his view, external debt is the key to the turmoil in European...
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In a federation of sovereign states, common debt can provide insurance against idiosyncratic shocks even without any … intended, ex ante transfers. This insurance property arises automatically when the common debt service is financed by a levy on … linking debt service to GDP growth. Uncertainty about growth increases with the time horizon. The insurance property of common …
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The eurozone countries are currently sitting on an aggregate exposure to Greece exceeding €300 billion. If the country were to exit the eurozone, it would certainly not be able to service its debt in the short run when the exchange rate overshoots. Over the longer run, however, the exchange...
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