Despite a formal ‘no-bailout clause’, we estimate significant net present value transfers from the European Union to … differences across countries. We characterize bailout size and likelihood as a function of the economic fundamentals (economic … ‘Northern view’ (transfers weaken fiscal discipline). While a stronger no-bailout commitment reduces risk-shifting, it may not …

We show that financial sector bailouts and sovereign credit risk are intimately linked. A bailout benefits the economy …-financial sector to fund the bailout may be inefficient since it weakens its incentive to invest, decreasing growth. Instead, the … sovereign may choose to fund the bailout by diluting existing government bondholders, resulting in a deterioration of the …