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Federal Reserve Bank of San Francisco
Working Paper Series
The Euro and the Geography of International Debt Flows
Galina Hale
Maurice Obstfeld
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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Galina Hale & Maurice Obstfeld, The Euro and the Geography of International Debt Flows, Federal Reserve Bank of San Francisco, Working Paper Series 2014-10, 14 Apr 2014, revised 26 Dec 2014.
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Keywords: international debt; EMU; international banking; global imbalances; euro crisis
DOI: 10.24148/wp2014-10
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