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Monday, January 19, 2015

Effective Eurozone QE: Size matters more than risk-sharing | VOX, CEPR’s Policy Portal

Effective Eurozone QE: Size matters more than risk-sharing | VOX, CEPR’s Policy Portal

This benefit of risk-pooling should not be over-emphasised, however. A default by a major Eurozone country is such an extreme event that speculation on what exactly would happen in such circumstances is almost impossible. Would debt default be followed by recapitalisation of central bank losses? Perhaps central banks would remain with negative equity, as the Bank of Chile and the Czech National Bank did for several years. Would default lead to a Eurozone breakup or exit? Would it be associated with inter-government assistance as in the case of Greece? Answering these questions is almost impossible.

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