Financialization of Government Debt? European Government Debt Management Approaches 1980-2007

The aim of the article is to understand how European government debt managers responded to the growing demand for credit by governments in the 1980s, and how the introduction of the common currency area influenced government debt management. The thesis is that both resulted in processes of financialization of the government debt management. Government debt instruments have gradually become financial products with all the associated risks to the governmental debtors. The analysis indicated that in the 1980s because of the growing demand for credits a paradigm shift emerged. The relationship between governments and their investors shifted from stable bilateral credit relationships to risky anonymous market relations. A financialization of the relationship with private investors took place. The role of financial market principles became much stronger. The implementation of the euro resulted not only in the new European rules but also in the financialization of the regulatory framework. The participating governments lost the privilege to encapsulate their markets. The risk of the creditors withdrawing from a country increased. Because of these two processes, managing government debt in the single currency area meant handling the risk of the financial markets and therefore developing a strategy to successfully issue in a transnational market without support from public authorities at least until the crisis.