Motivated by the recent European debt crisis, this paper investigates the scope for a bailout guarantee in a sovereign debt crisis. Defaults may arise from negative income shocks, government impatience or a “sunspot”-coordinated buyers strike. We introduce a bailout agency, and characterize the strategy with the minimal actuarially fair intervention which guarantees the no-buyers-strike fundamental equilibrium, relying on the market for residual financing. The intervention makes it cheaper for governments to borrow, inducing them borrow more, leaving default probabilities possibly rather unchanged. The maximal backstop will be pulled precisely when fundamentals worsen. •An actuarially fair bailout agency may eliminate multiple equilibria.•The bailout agency does not need to incur losses in expectation.•The agency may need to potentially purchase nearly the entire debt issuances.•Overall, the policy leads to higher debt levels and small changes in default rates.•Defaults arise only from fundamental reasons, and the agency should not intervene.