In this paper we analyse debt stabilization in a monetary union that features endogenous risk premia. In particular, we analyse debt stabilization in two diametrically opposed regimes. In the first regime, the "national fiscal discipline regime", financial markets impose sovereign risk premia...

During the euro area (EA) sovereign debt crisis, lenders in financial markets raised default risk premiums on sovereign bonds issued by countries that were then consid-ered too risky. Among some of these countries (especially Greece), fiscal policy had not been implemented according to good...