be a mixed blessing. the ability to accumulate more exposures may permit the pre - crisis boom to last longer. but it may also mean that the subsequent downfall is deeper. the second difference is that, by having a national currency, even if it is rigidly pegged to an external anchor, as in the case of argentina ’ s dollar currency board prior to 2001, the emes retain scope to devalue. by contrast, the european periphery countries have adopted the euro ; they no longer have a national currency and therefore can no longer devalue, at least against their main trading partners within the euro area. ruling out devaluation has pros and cons. on the one hand, the eradication of devaluation risk eliminates one element of financing costs that may rise rapidly in a financial crisis, even if the currency risk simply morphs into a credit risk. moreover, ruling out devaluation avoids “ beggar - thy - neighbour ” competitive devaluations that can trigger trade wars and protectionism, and weaken the growth outlook ( chart 18 ). and, without a devaluation option, peripheral euro area countries cannot fall into a vicious debt - devaluation spiral. devaluation increases the real value of the outstanding foreign currency - denominated debt burden in domestic currency terms and may thus worsen the economic and fiscal outlook of a country under stress. any resulting loss of market confidence may trigger further weakening of the domestic currency, thereby exacerbating the problem and creating a steady downward spiral of devaluation and rising debt burden. on the other hand, devaluation offers some scope to improve external price competitiveness and thus boost growth via better export performance. the benefits of any such devaluation will be greater for countries that have an export - based model of economic growth, relying on price competitiveness to build market share. this is typical of the “ asian tigers ”, but may be less relevant for mature european economies where export performance is driven by other factors, such as quality or branding. for peripheral euro area countries, which cannot devalue, the way to improve competitiveness is via domestic wage restraint and structural reforms to boost productivity. in an environment where domestic debt overhangs are large, the former approach runs the risk of creating a debt - deflation spiral : domestic nominal incomes are driven down, while the nominal debt remains unchanged, thereby increasing the real burden of previously accumulated financial imbalances. 10 yet europe

. afonso, a. kovner, and a. schoar, “ stressed, not frozen : the federal funds market in the financial crisis ”, journal of finance, vol. 66, no 4, 2011. see international capital market association, “ european repo market survey ”, no 23, june 2012, available at http : / / www. icmagroup. org / assets / documents / market - info / repo - market - surveys / icma - erc - european - reposurvey - june - 2012. pdf. bis central bankers ’ speeches december 2012 with 172 banks participating shows a similar development. 7 the money market study also compares the development of the secured with the unsecured market. and indeed, while the unsecured money market has steadily contracted since 2007, the secured money market has held its ground over the same period. another, more recent and troubling development in the functioning of the money markets is the on - going investigations into manipulations of key money market reference rates. the ecb is closely following this development and is supporting the attempts to reform reference rates, given the role they play in the transmission of monetary policy. in our response to the european commission ’ s public consultation, while stressing that reference rates should remain private market initiatives, we have called for short - term governance reforms to restore and uphold the credibility of these reference rates, associated with longer - term measures involving changes in the calculation methodology. in the short term, governance reforms and increased supervisory and regulatory scrutiny can help to restore the market ’ s confidence in the integrity of the benchmarks and to ensure their continuous viability. an appropriate balance must be found between a sound production process with adequate controls and safeguards on the one hand, and cost - efficiency for contributing banks on the other hand. also it is important that regulation is uniformly applied and enforced within the eu to avoid risks of further fragmentation in the money markets, and that international coordination is sought. in the longer term, a broader overhaul can be conceived, involving changes in the calculation methodology and possibly other changes to reflect the structural changes that have taken place in terms of the functioning of the money market since the onset of the crisis, such as the shift towards secured transactions. however, this process should be primarily driven by the market, based on the needs of end - users, while being supported by the public sector. in light of the fundamental importance of money market reference rates, we are closely