Financialization, confidence, and sovereign debt markets: The role of Credit Default Swaps in the Southern European debt crisis

Abstract

This article analyzes the state–market nexus by examining the role played by sovereign credit default swap (CDS) derivative markets in the southern European debt crisis of 2010–2014. This nexus is conceived of as being part of a larger process of state financialization and, more specifically, of sovereign debt management. This article shows that the southern European debt crisis was triggered by the deterioration of fundamental macroeconomic variables—not self-fulfilling dynamics driven by speculation. Moreover, the financialization of public debt markets may generate opportunities for governments to manage their public financing needs, which illustrates the complex nexus between markets and governments.