When the euro was introduced in 1998, one objective was to create an alternative global
reserve currency that would grant benefits to euro area countries similar to the U.S.
dollar’s “exorbitant privliege”: i.e., a boost to the perceived quality of euro denominated
assets that would increase demand for such assets and reduce euro area members’ funding
costs. This paper uses risk perceptions as revelaed in investor surveys to extract a measure
of privilege asscociated with euro membership, and traces its evolution over time. It finds
that in the 2000s, euro area assets benefited indeed from a significant perceptions
premium. While this premium disappeared in the wake of the euro crisis, it has recently
returned, although at a reduced size. The paper also produces time-varying estimates of
the weights that investors place on macro-economic fundmentals in their assessments of
country risk. It finds that the weights of public debt, the current account and real growth
increased considerably during the euro crisis, and that these shifts have remained in place
even after the immediate financial stress subsided.