Discussion paper

DP14848 Covid 19: a new challenge for the EMU

While the pandemic was an exogenous shock leading to increasing sovereign debt across the board, the dynamics of sovereign risk premiums has been heterogeneous in the Euro Area (EA). We estimate the determinants of sovereign bond spreads in the EA during the pandemic from January 2 2020 to May 25 2020. We find that: 1) resiliency to COVID shock depended on initial fiscal situation, robustness of the banking sector and healthcare capacity; 2) during the crisis, ECB speeches were a game changer and had a much larger contribution than actual securities purchase programs; 3) the coordination of the European Council also contributed to narrow down the spread but the effect was partly compensated by the implementation of financial assistance based on loans which contributed to increase the spreads.


Delatte, A and A Guillaume (2020), ‘DP14848 Covid 19: a new challenge for the EMU‘, CEPR Discussion Paper No. 14848. CEPR Press, Paris & London. https://cepr.org/publications/dp14848