International Financial Rescues in Europe and Beyond
Abstract:
Why do governments provide bilateral bailouts to countries that experience
financial crises above and beyond what the IMF provides? We argue that
governments face a trade off. On one hand, they have incentives to rescue a crisis
country because they want to prevent the spread of the crisis to their own country.
On the other hand, governments experience pressures from domestic constituents
who are oftentimes opposed to financial rescues. Politicians aim to balance these
countervailing pressures. Whereas they are more likely to provide financial support