The expansion of capital markets is accompanied and reinforced by a fundamental transformation of public finance, debt management and fiscal governance. Financial liberalization gave governments greater access to international capital markets and made them use new instruments to finance their deficits. As a consequence, the management of public debt was outsourced to professionalized agencies in many countries which use currency and interest rate swaps to manage their portfolio risks.  This raises the question whether the need to finance debt forces governments to follow the norms and requirements of capital markets or whether governments instrumentalize capital markets in order to accumulate more debt than they used to.  The financial crisis and the sovereign debt crisis give us an opportunity to answer this question due to the shift to austerity policies and tightened fiscal surveillance by the EU. This panel analyzes the relationship between capital markets and public budgets, the driving economic and political forces behind government debt finance and the consequences of the fundamental changes. First, David Howarth and Charlotte Rommerskirchen argue that in the EU fiscal consolidation will take place because significant divergence in national fiscal positions undermines market confidence in Euro Area stability more than the absence of binding rules. Then, James D. Savage analyzes the politics of the new EU fiscal rules. Waltraud Schelkle asks why governments ever subjected themselves so ostentatiously to budgetary transparency, provided by EU fiscal surveillance. Finally, Christine Trampusch scrutinizes the reform of German public debt management from an institutionalist perspective.