Why might a country choose to assist other countries in repaying debt? And how does the willingness to provide assistance influence market interest rates and ultimately default rates? We study the interaction between cross-country assistance and self-fulfilling debt crises. Our starting point is that a self-interested sovereign will choose to bail out another country only if this will benefit its own citizens. Investors in turn internalize the potential for assistance when deciding whether or not to hold debt of a crisis struck country. We describe conditions for when a cross-country bailouts are optimal, and analyze how the possibility of bailouts affects the equilibrium interest rate of a distressed country. We also characterize when it is optimal for‘safe’countries to provide assistance directly to domestic banks who have lent to countries facing a default, rather than to a debtor countries. In on-going work we explore a new channel for…financial contagion: investors learn from policymakers’decisions during an initial crisis episode about policymakers’ preferences, or about parameters that determine policymakers’ decision probem (e.g. parameters about which policymakers have superior information, such as political economy considerations, default costs, or creditor exposures). An initial crisis in one country can make a subsequent crisis in another country more likely if investors conclude from the first crisis that policymakers are unlikely to provide sufficient support.