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Balance sheets after the EMU: an assessment of the redenomination risk

Abstract : The probability of a partial or complete break-up of the euro has risen over the last years. Such an event could create a balance sheet problem for economic agents, if the redenomination process introduced significant currency mismatches between the asset and liability sides. We propose a new assessment of this redenomination risk, by country and by main institutional sector, for two scenarios: a single country exit and a complete break-up. Our main conclusion is that, even though the problem has to be taken seriously, its order of magnitude should not be exaggerated. Only a few sectors are at significant risk: public debts of Greece and Portugal, financial sectors of Greece, Ireland and Luxembourg. In particular, the balance sheet exposure of the non-financial private sector to the redenomination risk appears to be limited.
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Submitted on : Friday, October 29, 2021 - 2:38:22 PM
Last modification on : Wednesday, November 17, 2021 - 12:33:45 PM

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Cédric Durand, Sébastien Villemot. Balance sheets after the EMU: an assessment of the redenomination risk. Socio-Economic Review, Oxford University Press (OUP), 2020, 18 (2), pp.367-394. ⟨10.1093/ser/mwy004⟩. ⟨hal-03409079⟩

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