Leiam o Dani Rodrik.
If you want to keep borrowing money, you need to convince your lender that you can repay. That much is clear. But in times of crisis, market confidence takes on a life of its own. It becomes an ethereal concept devoid of much real economic content. It turns into what philosophers call a “social construction” – something that is real only because we believe it to be.
For, if economic logic were clear-cut, governments wouldn’t have to justify what they do on the basis of market confidence. It would be evident which policies work and which do not, and pursuing the “right” policies would be the surest way to restore confidence. The pursuit of market confidence would be superfluous.
The silver lining in all this is that, unlike economists and politicians, markets have no ideology. As long as they make money they do not care if they have to eat their words. They simply want whatever “works”—whatever will produce a stable, healthy economic environment conducive to debt repayment. When circumstances become dire enough, they will even condone debt restructuring—if the alternative is chaos and the prospect of a greater loss.
This opens up some room for governments to maneuver. It permits self-confident political leaders to take charge of their own future. It allows them to shape the narrative that underpins market confidence, rather than play catch-up.