Eurozone Membership, Financial Integration, and Sovereign Creditworthiness

ABSTRACT In this paper, we examine the impact of eurozone membership on sovereign creditworthiness over the period 1996–2021 and the underlying channels through which the impact operates. We find that (a) eurozone membership improves sovereign credit ratings by about one notch on average; (b) the rating boost varies across eurozone countries and displays different intertemporal patterns for core and peripheral eurozone countries; and (c) financial integration between member states of the eurozone is a significant 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 rating boost.