Official Sector Lending Strategies During the Euro Area Crisis

57 Pages Posted: 21 Aug 2017 Last revised: 18 Sep 2017

See all articles by Giancarlo Corsetti

Giancarlo Corsetti

University of Cambridge; University of Rome III - Department of Economics; Centre for Economic Policy Research (CEPR)

Aitor Erce

UPNA

Timothy Lim Uy

University of Minnesota - Minneapolis

Date Written: August 2017

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 in favour of cash-flow 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.

Keywords: Crisis management, debt sustainability, loans maturity, market access, private sector involvement, seniority, yield curve.

JEL Classification: F33, F34, F45, H12

Suggested Citation

Corsetti, Giancarlo and Erce, Aitor and Uy, Timothy Lim, Official Sector Lending Strategies During the Euro Area Crisis (August 2017). CEPR Discussion Paper No. DP12228, Available at SSRN: https://ssrn.com/abstract=3023214

Giancarlo Corsetti (Contact Author)

University of Cambridge ( email )

University of Rome III - Department of Economics ( email )

via Ostiense 139
Rome, 00154
Italy
+39 06 5737 4056 (Phone)
+39 06 5737 4093 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Aitor Erce

UPNA ( email )

Pamplona
Spain

Timothy Lim Uy

University of Minnesota - Minneapolis ( email )

110 Wulling Hall, 86 Pleasant St, S.E.
308 Harvard Street SE
Minneapolis, MN 55455
United States

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