To ensure that markets effectively discipline fiscal policy it is equally important that investors themselves can expect to bear the consequences of their investment decisions, that is to say, both profits and losses. This requires a stronger institutional framework and an overhaul of financial market regulation which is currently under way. Relevant aspects have been discussed in some papers presented at this conference.
Cooper and Kempf as well as Cukierman and Izhakian, for instance, have discussed the problem of bailouts with regard to their potential costs and benefits or their impact on risk assessments. Markets are a powerful complement in disciplining fiscal policy, but we should not rely on them alone.