Reassuring the Market in Times of Crisis

Together with Christoph Elhardt, Jørgen Bølstad argues in this article that distinguishing between actors' capacity and willingness to avoid sovereign default is key to understanding the Eurozone debt crisis.


Preserving the trust of bond markets is crucial for the world's many indebted countries, but it is still unclear when and how national or international actors can contribute to this goal. We present a set of arguments addressing this question and test them on the case of the eurozone debt crisis. Distinguishing between actors' capacity and willingness to avoid defaults, we argue that the crisis was marked by a lack of capacity at the national level, and limited or uncertain willingness at the European level. Accordingly, we find that European-level efforts to reassure markets had considerably stronger effects than similar efforts at the national level. Furthermore, national efforts appear to have mattered the least in countries with the least capacity. These findings are based on a comprehensive new dataset of political events and relevant news, and they hold across a number of robustness checks and placebo tests.

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Jørgen Bølstad and Christoph Elhardt
Capacity, Willingness, and Sovereign Default Risk: Reassuring the Market in Times of Crisis

Journal of Common Market Studies (JCMS), Online, November 2017
DOI: 10.1111/jcms.12620

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Published Nov. 23, 2017 11:58 AM - Last modified Feb. 1, 2022 10:45 PM