The Eurozone Membership Impact on Sovereign Creditworthiness

Abstract

We examine the impact of eurozone membership on sovereign creditworthiness over the period 1996-2017. We find that: (a) membership significantly improved sovereign creditworthiness, on average by well over one ratings notch, over this period; (b) the ratings boost was significantly higher in the pre-crisis period (with countries in the periphery of the eurozone being the principal beneficiaries), but declined sharply after 2010; and (c) financial integration between member states is the principal driver of the improved creditworthiness. We also describe a number of other findings including an entry effect from joining the eurozone, and lowered borrowing costs (as measured by CDS spreads) in line with the ratings boost.