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Are Financial Markets at the Root of Public Over-Indebtness?

In: The Palgrave Handbook of Public Debt and Policy Mix

Author

Listed:
  • Franck Moraux

    (University of Rennes)

  • Gervais Essama-Zoh

    (University of Lille)

Abstract

The increase in global public debt levels raises questions about the role of financial markets in facilitating sovereign over-indebtedness. While interventions such as quantitative easing during the Global Financial Crisis and the COVID-19 pandemic have played a central role in recent years, structural factors also underpin today’s abundant global liquidity—most notably demographic aging worldwide, and the expansion of middle classes in emerging economies. Financial markets offer sovereign issuers alternative funding channels, particularly valuable when traditional sources of credit are exhausted. Ultimately, although markets can accommodate high levels of sovereign borrowing, they do not provide unconditional support. Demand for sovereign debt remains deep, but access to market-based financing entails responsibilities and constraints. Investors remain vigilant and risk-aware. There still is no such thing as a free lunch.

Suggested Citation

  • Franck Moraux & Gervais Essama-Zoh, 2026. "Are Financial Markets at the Root of Public Over-Indebtness?," Springer Books, in: Chicot Eboué (ed.), The Palgrave Handbook of Public Debt and Policy Mix, chapter 7, pages 153-193, Springer.
    • Handle: RePEc:spr:sprchp:978-3-032-12508-8_7
    DOI: 10.1007/978-3-032-12508-8_7
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    Keywords

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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