The value of the pound fell in response to the official launch of the election campaign as foreign exchange markets reacted to the distinct possibility that it could produce weeks of wrangling over which leader or leaders and which party or parties are left in charge of the British economy.
It’s not that dealers are consciously “sending a message” to the electorate or even the candidates, though that is how their actions are translated into news reports for public consumption and interpreted by the contending parties. Market traders are directing their attention to the single-minded pursuit of profit.
It is their perception of the actual and likely trajectory of political change that affects and responds to actual and predicted movements in the relative price of currencies on international markets. The same logic determines the price at which government bonds change hands, and the interest rates attached to them.
As the period of profit derived from the growth of globalising corporations waned in the 1990s, world economic expansion became increasingly dependent on credit to fund both the production and consumption sides of the equation.
This coincided with the coming to power In Britain of New Labour. Gordon Brown was its Chancellor for most of the period, single-mindedly working to build relationships with the heads of the global financial institutions by turning the City of London into the world’s most attractive place for them to do business.
And the business was credit. Britain became a central hub for financial transactions. As time passed, the balloons of fantasy finance needed to keep the global capitalist economy from shrinking were inflated to unsustainable pressure.
When all that collapsed, Brown was to the fore, leading the world in shoring it up again through the invention and deployment of new, ever more fantastic sources of credit. Britain’s personal, corporate and government combined debt in relation to its annual output exploded, surpassing every other country.
But now it is payback time. Investors who bought government bonds with credit given to them by those very same governments want to see some return on “their” capital. The concern is that the debts have grown so high that they can’t be serviced, let alone repaid. Just like the default on sub-prime mortgages that triggered the collapse in 2007. Only on a much grander scale.
Payback will require governments to inflict unprecedented pain on their electorates. Investors, speculators and market traders will only put their money into places where governments show the greatest determination to extract the value needed to service their debts. An indeterminate election on May 6 is not what the markets want and it shows itself in currency gyrations.
Even where there seems to be agreement to slash state budgets, popular resistance is throwing governments off balance. The Greek government is already wavering in its determination to impose the recently-agreed austerity programme on its restive population. Iceland is in a political limbo following the overwhelming rejection of the terms of the repayment of its debts to the British and Dutch governments.
The conflict between the masters of the global economy and their political pawns on the one side and the mass of the population on the other is certain to mount. Strikes are growing in frequency and intensity throughout Europe, whatever legal obstacles are put in their way by the state.
Britain’s general election will not settle any of these questions because they reflect the deep divisions and insoluble contradictions at the heart of capitalism itself . New systems of democracy that put people in ownership and control of society’s resources are posed as the only practical way out of this impasse.