Risk, crisis and governance : a critical analysis of the Greek debt crisis.

• Main Author: Blomenhofer, Michael Richard.
• Other Authors: S. Rajaratnam School of International Studies
• Format: Theses and Dissertations
• Language: English
• Published: 2013
• Subjects: DRNTU::Humanities
• Online Access: http://hdl.handle.net/10356/55168
• Institution: Nanyang Technological University

Why did financial markets radically reassess Greece's risk of sovereign default in late 2009? Neoclassical economic theory suggests that the yield of a government bond is an apt reflection of all information regarding a country's ability and willingness to serve its debt obligations. Increased perceived riskiness of Greek government bonds, reflected in the surge of bond yields, would therefore be entirely due to news that would suggest otherwise. A Keynesian critique contends that psychological factors also drive bond yields up or down, irrespective of news about the country in question. We find that although news about the deteriorating Greek economic fundamentals were an important factor to drive up bond yields, panicking financial markets also overcompensated for their lack of scrutiny during the decade prior to the events of 2009, which we explain with the shattering of several conventions that turned out to be illusionary. What role do perceptions of risk play in financial crises? Using Foucault's concept of governmentality we furthermore argue that sovereign risk is not only based on objective criteria, but that it must be understood as a socially inter-mediated construct that is sustained by practices and discourses. Even though risk is portrayed as an objective measure of the probability that a hazard will occur, we find evidence to suggest that not only is its measurement subjective, but also that its use serves inherent political and ideological agendas. In particular we find that since the outbreak of the crisis public risk perception of Greek sovereign default has been used as a tool of governance with the result of introducing neoliberal reforms in the country.