How publicly available information reflects the efficiency of the financial resources’ allocation?

The bail outs of Greece and Ireland and the probability that Portugal and Spain may be the next countries those require financial support to keep the stability of the international banking system contradict the fundamentals that government cannot default and sovereign debt is risk free. As long as investors require higher rates from all other borrowers those carry risk of bankruptcy it raises doubts whether markets are efficient.


The European nations’ problems to tackle sovereign debts automatically increase borrowing cost for corporations, so that it does not reflect the real risk and viability of investment projects that generates positive net present value. Consequently, with the asymmetric information in the bond market when financial resources are allocated to cover excessive government spending and corporations carry government risk, entrepreneurs may delay or refuse to implement less profitable business development projects and that could deepen the stagnation of the European economy.

Thus, is it possible to deny the entrenched perception that the rates of the sovereign debt are the benchmark to determine the borrowing cost for private sector and expect fair borrowing charges if more information regarding the stable state of corporations would be publicly available?