A Ticket to Ride? - The Impact of Euro Adaption on Sovereign Credit Ratings and Long-term Bond Rates

Published: 5 January 2022| Version 1 | DOI: 10.17632/ysw26s83jt.1
Szilárd Erhart


This dataset has been prepared by Szilárd Erhart for a research paper on the impact of euro adoption on Sovereign Credit Ratings. ABSTRACT The paper investigates the impact of euro adoption on sovereign credit ratings and on long-term rates experienced until the 20th anniversary of the euro. The three pillars of the research are (1) the analysis of the scoring methodology of Credit Rating Agencies, (2) the empirical investigation of the "euro privilege" in the ratings of Fitch, Moody's and S\&P, and (3) and in the long-term government bond rates. We find that the methodology of ratings allows an upgrade up to 2 notches from admission to the Exchange Rate Mechanism II to joining the euro. The euro privilege varied in the range of 0-1 notch before the financial crisis, reached its 1.5 notch maximum at the peak of the crisis and disappeared during the euro crisis. Long-term government bond rates benefited continuously from euro, not only from improved credit quality before the crisis, but also from lower liquidity and FX risk, likely as a result of access to ECB operations. Eurozone members enjoyed a significant euro financing privilege for almost the entire sample period, e.g. 1-2 percentage point lower cost at the ten year maturity compared to non-eurozone EU countries. Results are relevant for current and candidate Eurozone members, as they allow an estimate of some of the benefits and sometimes costs of euro adoption and may shed light on the importance of deepening the Economic and Monetary Union and strengthening the international role of the euro further. The author takes no responsibility for the timeliness, accuracy, completeness or quality of the information provided. The author is in no event liable for damages of any kind incurred or suffered as a result of the use or non-use of the information presented or the use of defective or incomplete information . The contents are subject to confirmation and not binding. The author expressly reserves the right to alter, amend , whole and in part, without prior notice or to discontinue publication for a period of time or even completely.



Monetary Economics, Europe