This paper investigates the macroeconomic and welfare effects of altering debt maturity

during a sovereign debt crisis in which sovereign and bank risk are intertwined. My main

finding is that shifting towards short-term maturities alleviates the bankers' capital losses from

the crisis and moderates the recession at the cost of higher levels of public debt in the future.

In contrast, lengthening the maturity structure is more effective in reducing the households'

welfare losses as it leads to a lower sovereign default risk and lower distortionary labor taxes by

reducing the level of debt. An optimized joint policy of debt maturity and public spending is

able to fully neutralize the welfare losses and to mitigate the economic downturn.