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Official sector lending strategies during the Euro Area crisis

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  • Corsetti, Giancarlo
  • Erce, Aitor
  • Uy, Timothy

Abstract

In response to the euro area crisis, European policymakers took a gradual, incremental approach to official lending, at first relying on the approach followed by the International Monetary Fund, then developing their own crisis resolution framework. We review this development, marked by a substantial divergence in the terms of official loans offered to the crisis countries by the IMF and the euro area official lenders. Based on a unique dataset, we use event analysis to assess the impact of changing maturity and spreads of official loans on bond yields, liquidity and market access. In light of the euro area experience, we discuss arguments for rebalancing Debt Sustainability Analysis and programme design towards cashflow management. While the official assistance granted to crisis countries in the euro area may not be replicable elsewhere, key lessons from it could foster a reconsideration of the modalities by which official lending institutions handle crises.

Suggested Citation

  • Corsetti, Giancarlo & Erce, Aitor & Uy, Timothy, 2017. "Official sector lending strategies during the Euro Area crisis," LSE Research Online Documents on Economics 86155, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:86155
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    File URL: http://eprints.lse.ac.uk/86155/
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    Cited by:

    1. Corsetti, G. & Erce, A. & Uy, T., 2018. "Debt Sustainability and the Terms of Official Support," Cambridge Working Papers in Economics 1864, Faculty of Economics, University of Cambridge.
    2. Christophe Destais & Frederik Eidam & Friedrich Heinemann, 2019. "The design of a sovereign debt restructuring mechanism for the euro area: Choices and trade-offs," CEPII Policy Brief 2019-25, CEPII research center.

    More about this item

    Keywords

    crisis management; debt sustainability; loans maturity; market access; private sector involvement; seniority; yield curve;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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