Publication

This commentary tests Belgian economist Paul De Grauwe’s eurozone fragility hypothesis which states that member countries of a monetary union (such as the eurozone) are highly vulnerable to a self-fulfilling mechanism by which the efforts of investors to avoid losses from default can end up triggering the very default they fear. The authors study the core and periphery eurozone countries as well as non-euro countries and conclude that their findings support the fragility hypothesis. They also conclude, however, that the Outright Monetary Transactions program announced on July 26th 2012 by the European Central Bank succeeded in mitigating the self-fulfilling dynamics within the eurozone.