Democracy bad news - for financial markets

There argument about whether democracy is good for capitalism was settled yesterday – by the financial markets. Any notion that people should have a choice about whether they should shoulder the burden of the global crisis was put to rest.

Markets recoiled in shock after Greek Prime Minister Papandreou’s unexpected announcement that he would call a referendum on the eurozone bail-out package which piles hardship upon hardship on the country’s people.

The suggestion of a democratic interference induced a cardiac arrest. Concern that Greece was now heading for default sent bank shares in particular plummeting. France’s Société Générale recorded its biggest one-day fall since it was privatised in 1987. The bank holds lost of pretty worthless Greek government debt.

Markets in government issue bonds – historically the safe-haven fall-back for investors – look as though they’ll also need resuscitation. The price Italy has to pay to borrow against its debt soared to over 4.5% above what Germany pays, despite heavy intervention by the European Central Bank.

This gap – or “spread” – is similar to one that that forced the Greek, Irish and Portuguese governments to seek mercy from the rest of the world, subordinating the fate of their people to the grim-faced come-what-may survival of the capitalist system.

Gary Jenkins, head of fixed income at Evolution Securities said “We may have reached the tipping point.” With a name like that, they should know, but what the outcome might be is beyond their, or anyone else’s ability to predict.

Last week, the 17 eurozone leaders thought they had a deal to avert a Greek default and

and prevent a European and global collapse into the unknown. The only certainty associated with the terms of the deal is that it must mean a further huge assault on the Greek people.

To receive new loans, the Greek government must impose still further cuts in public sector wages and scrap many bonuses, suspend 30,000 public sector workers for a year, cutting their wages cut to 60%, suspend wage bargaining, cut some pensions by 20%, increase taxes and implement a range of other measures.

So recourse to a popular referendum in the home of democracy is unlikely to meet with a majority in favour.

With his surprise move Papandreou, leader of the ‘Socialist’ PASOK, has thrown his party into turmoil. With only a tiny majority in Parliament, two members of his government have threatened to vote as independents, and a third is calling for a government of national unity. But he managed to win the support of his cabinet.

Then he was promptly summonsed to Nice to meet the leaders of Germany and France, who expressed total surprise at the referendum call.

It is more than 2,500 years since “the power of the people” was adopted as the basis for democracy in Athens. In the intervening period the forms of government in which, supposedly, all the people have an equal say in the decisions that affect their lives have changed many times over.

The advent and rapid development of capitalist society spread the parliamentary form as the means of resolving conflict in nation-states between the old feudal landowners, the new owners of accumulating capital, and latterly in Britain at least, keeping a lid on the aspiration of workers.

But, in the latter part of the 20th century, the credit-financed spread of global corporations overwhelmed and changed the role of parliamentary governments, who must now either submit to the rule of capital or leave the stage to someone who will.

In the occupation of towns and cities across the world, a new form of democracy is stretching its limbs, discovering its identity, assembling its forces in assemblies and occupations. They can easily establish relationships with employee-owned trusts like Publix in the US and John Lewis in the UK and co-operatives in manufacturing, distribution and finance, like Mondragon in Spain.

Then people’s assemblies could start to challenge the failed political system and open up a period of real democracy throughout the world. There’s no doubt it’s needed if we want to stop the rule of the financial markets.

Gerry Gold
Economics editor