Political roots of Public Debt Market Inefficiency in the Euro Area

Abstract

The international literature confirms the inefficiency of sovereign debt markets in the Euro Area before the last crisis, at the same time, it suffers from the insufficient explanation of this phenomenon. That is because economic and financial reasons are not fully persuasive while politics-related aspect needs for deeper clarification.

Thus, this piece aims to define the political roots of sovereign debt markets inefficiency in the Eurozone before 2009. Combining statistical data scrutiny with findings from the international literature, concluded that European economic governance deformed the requirements of market efficiency. Consequently, market players operating without institutional support were unable to make a reliable valuation.