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

  • Juan Carlos Conesa
  • Timothy J. Kehoe

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19909.

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Date of creation: Feb 2014
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Publication status: 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.
Handle: RePEc:nbr:nberwo:19909
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  1. Juan Carlos Conesa & Timothy J. Kehoe, 2012. "Gambling for redemption and self-fulfilling debt crises," Staff Report 465, Federal Reserve Bank of Minneapolis.
  2. Harold L. Cole & Timothy J. Kehoe, 1998. "Self-Fulfilling Debt Crises," Levine's Working Paper Archive 114, David K. Levine.
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