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

13 Pages Posted: 24 Feb 2014 Last revised: 27 May 2023

See all articles by Juan Carlos Conesa

Juan Carlos Conesa

University of Barcelona

Timothy J. Kehoe

University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 2014

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.

Suggested Citation

Conesa, Juan Carlos and Kehoe, Timothy J., Is it Too Late to Bail Out the Troubled Countries in the Eurozone? (February 2014). NBER Working Paper No. w19909, Available at SSRN: https://ssrn.com/abstract=2400236

Juan Carlos Conesa (Contact Author)

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

Timothy J. Kehoe

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
1169 Management & Economics
Minneapolis, MN 55455
United States
612-625-1589 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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