The ‘Tequila Crisis’ and Mexico’s long economic hangover

The so-called Tequila Crisis reshaped Mexico's economy, bringing stability but at the cost of slower growth. | REUTERS

Oct 20, 2026

Global debt crises follow a painful and familiar template. A rise in the cost of money reveals whose house is in order and who has been cutting corners. In 1994 under Alan Greenspan, and again this year under Kevin Warsh, the Federal Reserve surprised the world by reversing, raising short-term interest rates when they had been expected to cut, and pushing up the cost of longer-term money in the form of 10-year Treasury yields to the point when someone hits crisis.

In 2026, the victim appears to be France. It has too big a fiscal deficit for investors’ comfort, is wracked by political instability as a centrist president is due to stand down and lacks control over its own currency as a member of the euro zone. Three decades ago, these conditions applied to Mexico. It had borrowed too much, had just replaced Carlos Salinas de Gortari as president after a stormy election campaign in which the leading candidate was assassinated and had fixed the peso at an unrealistically high exchange rate to the U.S.

As we await the denouement in France, it’s easy to miss that this time the Mexican dog has not barked. Back in 1994, the Tequila Crisis unfolded as President Ernesto Zedillo’s new government tried to loosen the exchange rate a little, only for markets to swamp it by forcing a massive devaluation. The result was financial carnage. Inflation rose to more than 50% by the end of 1995, and when the dust had settled, half of Mexican banks’ assets had been written off.

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