We examine the institutional requisites for a market mechanism to be effective at desciplining fiscal policy and check whether such requisites are met in the current European setting (section 1). Second, we explore the theoretical and empirical link between a country’s fiscal record, the rating of its debt and the risk premium embodied in the interest rates it is demanded to pay (section 2). Third, we discuss, also by looking at few case-studies, the factors determining government’s sensitivity to market signals and their willingness to change their fiscal stance accordingly (section 3).