1 This brief summary already suggests the complexity and ambiguity of some of the concepts involved and their measurement. Evidently, redenomination risk, as imagined by market commentators, combines default and currency risk in a novel way not contemplated by the Treaty that established the euro area.
The ECB has made clear its determination to do what is necessary to preserve the euro and remove unfounded euro break-up premia in sovereign yields. The OMT, designed as a backstop to inhibit negative self-fulfilling market dynamics, provides the necessary tools to deliver on that commitment.