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Abstract

This article analyses how financial actors sought to minimise financial uncertainties during the European sovereign debt crisis by employing simulations as legal instruments of market regulation. We first contrast two roles that simulations can play in sovereign debt markets: ‘simulation-hypotheses’, which work as bundles of constantly updated hypotheses with the goal of better predicting financial risks; and ‘simulation-fictions’, which provide fixed narratives about the present with the purpose of postponing the revision of market risks. Using ratings reports published by Moody’s on Greece and European Central Bank (ECB) regulations, we show that Moody’s stuck to a simulationfiction and displayed rating inertia on Greece’s trustworthiness to prevent the destabilising effects that further downgrades would have on Greek borrowing costs. We also show that the multi-notch downgrade issued by Moody’s in June 2010 followed the ECB’s decision to remove ratings from its collateral eligibility requirements. Then, as regulators moved from ‘regulation through model’ to ‘regulation through contract’, ratings stopped functioning as simulation-fictions. Indeed, the conditions of the Greek bailout implemented in May 2010 replaced the CRAs’ models as the main simulation-fiction, which market actors employed to postpone the prospect of a Greek default. We conclude by presenting austerity measures as instruments of calculative governance rather than ideological compacts.

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