In a stylized model of the EMU, where centralized and national policy authorities strategically interact, we show that quantitative easing (QE) operates as an indirect risk-sharing mechanism that could improve EMU stability and the welfare of (a part of the) member states. We consider global financial instability and its impact on the sovereign debts of peripheral countries. On the one hand, QE reallocates a part of the cost of stabilizing the EMU from the periphery to the core; on the other hand, it partially internalizes the fact that monetary union stabilization is a public good. The rationale of our finding is that QE policies reduce the cost of fiscal adjustment in the peripheral countries and incentivize consolidation of their public balance sheets. Conversely, QE is not required in the core; it thus comes at a cost for central countries.

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