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Title: The Euro and the Geography of International Debt Flows

Author(s): Galina B Hale and Maurice Obstfeld

Publication Date: April 2014

Keyword(s): EMU, euro crisis, global imbalances, international banking and international debt

Programme Area(s): International Macroeconomics

Abstract: Greater financial integration between core and peripheral EMU members had an effect on both sets of countries. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms. Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. The result has been asset-price bubbles and collapses in some of the peripheral countries, area-wide banking crisis, and sovereign debt problems. We analyze the geography of international debt flows using multiple data sources and provide evidence that after the euro's introduction, Core EMU countries increased their borrowing from outside of EMU and their lending to the EMU periphery.

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Bibliographic Reference

Hale, G and Obstfeld, M. 2014. 'The Euro and the Geography of International Debt Flows'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9937