Country Solidarity in Sovereign Crises

Jean Tirole


When will solidarity, which emerges spontaneously from the fear of spillovers, be reinforced through contracting? The optimal pact between countries that differ substantially in their probability of distress is a simple debt contract with market financing, a borrowing cap, but no joint liability. While joint liability augments total surplus, the borrowing country cannot compensate the deep-pocket guarantor. By contrast, the optimal pact between two countries symmetrically exposed to shocks with an arbitrary correlation is a simple debt contract with joint liability, provided that shocks are sufficiently independent, spillovers sufficiently large, liquidity needs moderate and available sanctions sufficiently tough.


Sovereign debt; solidarity; joint liability; bailouts;

Codes JEL

  • E62: Fiscal Policy
  • F34: International Lending and Debt Problems
  • H63: Debt • Debt Management • Sovereign Debt


Jean Tirole, « Country Solidarity in Sovereign Crises », American Economic Review, vol. 105, n° 8, 2015, p. 2333–2363.

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Publié dans

American Economic Review, vol. 105, n° 8, 2015, p. 2333–2363