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Modelling the Sovereign Debt Crisis in Europe

Published online by Cambridge University Press:  26 March 2020

Dawn Holland ,
Simon Kirby  and
Ali Orazgani
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Extract

This note examines the impact of rising bond yields in certain Euro Area countries on debt sustainability. It concludes that without the financial assistance of the bailout packages, government debt in Greece would clearly have been unsustainable, while Ireland and Portugal would have been extremely vulnerable. We also examine the case of vulnerable countries which have not received bailouts — Italy, Spain and Belgium. We conclude that while they can absorb some temporary rise, as has been seen in recent weeks, a significant further sustained rise — more than 100–200 basis points — would call their solvency into question in the absence of financial assistance.

Type
The World Economy
Information
National Institute Economic Review , Volume 217 , July 2011 , pp. F37 - F45
Copyright
Copyright © 2011 National Institute of Economic and Social Research

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