Is It Too Late to Bail Out the Troubled Countries in the Eurozone?

Juan Carlos Conesa; Timothy J. Kehoe

doi:10.1257/aer.104.5.88

American Economic Review Vol. 104 No. 5 2014

Is It Too Late to Bail Out the Troubled Countries in the Eurozone?

Juan Carlos Conesa¹; Timothy J. Kehoe²

¹ Department of Economics, Stony Brook University, SBS Building, Office S-637, Stony Brook, NY 11794 (e-mail: ) · ² Department of Economics, University of Minnesota, 1925 Fourth Street South, Minneapolis, MN 55455, Federal Reserve Bank of Minneapolis, and NBER (e-mail: )

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Abstract

In January 1995, US 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.

DOI: 10.1257/aer.104.5.88
Volume: 104
Issue: 5
Pages: 88-93
Language: en
Sources: crossref bibtex:phds-export.bib openalex

Is It Too Late to Bail Out the Troubled Countries in the Eurozone?

Abstract

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