Unless otherwise defined, the disciplining function of financial markets refers to the pressure exerted by the international financial market on governments to limit their public spending and debt. – Empirical evidence shows that such disciplining often fails to materialize or materializes too late. Indeed, if the supply on the international financial markets is abundant, then every customer with a sorry rating will be served. Before the subprime crisis, many emerging markets were able to borrow money without any problems: significantly, usually shortly before a sovereign default. Often – as in the case of Turkey in the 1990s – financial markets enable irresponsible governments to indulge in a deficit spending rush, as it were. By the time market discipline kicked in, it was in most cases already too late. – See Financial Crisis, Financial Market Analysis, Greek Crisis, Market Failure, Repatriation Effect.
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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