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

Juan Carlos Conesa and Timothy Kehoe

No 19909, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: F34 F53 G01 (search for similar items in EconPapers)
Date: 2014-02
New Economics Papers: this item is included in nep-eec and nep-opm
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Published as Juan Carlos Conesa & Timothy J. Kehoe, 2014. "Is It Too Late to Bail Out the Troubled Countries in the Eurozone?," American Economic Review, American Economic Association, vol. 104(5), pages 88-93, May.

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