At Cross-purposes: Commercial versus Technocratic Governance of Sovereign Debt in the EU

Abstract:

The governance of EMU was premised on the idea that market discipline, informed by fiscal surveillance, supports the building of a hard currency union. Theory would lead us to expect that the international–commercial and the supranational–technocratic assessments of sovereign debt are fairly aligned. But they were not. We show that credit rating agencies and Eurostat have rather different assessments of what certain policies mean for sovereign debt. These assessments reveal divergent institutional logics of market actors and regulators. Private agencies are prone to conformism and herding behavior, allowing for little consistent discipline, while the public agency follows a bureaucratic imperative of accountability and transparency, which gets in the way of evolving policy priorities. Our findings thus shed light on the difficulties of fiscal governance by regulation only but they also suggest that reforms at the EMU level do not provide quick fixes.