Currency composition and public debt in EMU

We analyze the consequences of the creation of EMU on the currency composition of public debts and compare this situation with the pre-EMU one in which an anchor country (Germany) was leading the monetary policy of the ERM. Empirical evidence shows that the foreign currency public debt of some EMU members has decreased during the EMU process. Within the paper's theoretical framework, this is an indication that the road towards EMU increased the credibilityof fixed exchange rates. This also means that the ECB is perceived as a credible institution able to commit to low inflation.