After the First Default of the Greek State, Large Corporations Were Suddenly Safer Than Their Countries’ Governments

We are so accustomed to see government representatives and activities around us—in taxes, regulations, assistance, enforcement, and so on—that the state seems to be omnipresent and immortal. The state is naturally deemed to be a solid institution, the most solid of all. Everybody is supposed to trust it. This is why the sovereign debt is, or was, supposed  to be totally safe. Those who continue to buy government securities still seem to think so. As The Economist writes with a whiff of British humor: “If governments aren’t safe, after all, what is?” Many people were surprised when, in 2009, the sovereign debt crisis appeared in Europe. Suddenly, the state itself looked fragile. After the first, disguised default of the Greek state, large corporations in many countries were suddenly considered safer than their countries’ governments: in February 2012, the cost of insuring bonds (through financial instruments called “credit default swaps” or CDSs) was lower for ENI (an Italian multinational corporation in oil and gas), for Telefónica (a Spanish telecom multinational), for Danone (a French food product multinational), for Bayer (a German pharmaceutical multinational), for IBM (an American computer service multinational), than for their respective home governments.

Thus, there is a sovereign risk, a risk that states will not reimburse their debts, as happened often historically, although we seem to have forgotten it. The world of trusted state securities is over. “Sovereign risk is out of the bottle,” wrote The Economist in early 2010. “There is no easy way of putting it back in.”

—Pierre Lemieux, The Public Debt Problem: A Comprehensive Guide (New York: Palgrave Macmillan, 2013), 6-7.