Have the Media Made the Greek Crisis Worse? An Inquiry into the Credit Crisis of the State

Developments over the course of 2009 and early 2010 have demonstrated that industrialized nations are not immune to credit crises that can threaten their solvency. Dislocations in sovereign credit markets could have triggered a default of countries like Greece, Spain, Italy or Portugal if it had not been for the action by other eurozone members. While it seems obvious that high leverage (that is, the degree to which states rely on credit2) to fund their activities has been at the root of the problems, the Greek case suggests that fundamentals alone cannot explain the timing and the dynamic of recent developments. To understand what caused the evaporation of trust visà-vis Greek sovereign debt titles, one has to analyze what determined the perception of bond investors. The paper argues that the media contributed to the downward spiral in the level of confidence by investors through its intensified and overly valueladen coverage of the Greek case. To explain what fosters media bias and how it translates into bond markets dynamics the paper looks at institutional features of the media business and the functional relationship between media organizations and financial markets. The role of the media has been subject to much scholarly scrutiny, but has thus far not been in the realm of sovereign credit. This paper aims to fill this gap and, by doing so, tries to shed light on the recent credit crisis of the state