Federal Reserve Bank of Minneapolis
Is It Too Late to Bail Out the Troubled Countries in the Eurozone?
In January 1995, U.S. President Bill Clinton organized a bailout for Mexico that imposed penalty interest rates and induced the Mexican government to reduce its debt, ending the debt crisis. Can the Troika (European Commission, European Central Bank, and International Monetary Fund) organize similar bailouts for the troubled countries in the Eurozone? Our analysis suggests that debt levels are so high that bailouts with penalty interest rates could induce the Eurozone governments to default rather than reduce their debt. A resumption of economic growth is one of the few ways that the Eurozone crises can end.
Cite this item
Juan Carlos Conesa & Timothy J. Kehoe, Is It Too Late to Bail Out the Troubled Countries in the Eurozone?, Federal Reserve Bank of Minneapolis, Staff Report 497, 05 Feb 2014.
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
- G01 - Financial Economics - - General - - - Financial Crises
Keywords: Sovereign debt; Bailout; Penalty interest rate; Collateral
This item with handle RePEc:fip:fedmsr:497
is also listed on EconPapers
For corrections, contact Jannelle Ruswick ()