Bond dealers put a price on democracy

The financial markets that have forced out the Greek government and are on the verge of bringing down Italy’s, now instinctively prefer to sideline what is left of the democratic process if it means they have a better chance of getting their money back.

Not only that, they would rather have a non-government of so-called technocrats in place of politicians in some cobbled together coalition. So whatever you think of Berlusconi or Papandreou's wretched politics, their impending demise is a sinister development with echoes of past European history.

Politics, even of the bourgeois variety, increasingly stands in the way of capital’s interests because it is a time-consuming process. Putting together governments of national unity, agreeing a strategy for spending cuts, holding referenda – all this takes too long when time is not on capitalism’s side.

So Papandreou’s call for a general election in Greece is off the agenda. It would only result in more uncertainty, the markets declared. France and Germany’s leaders agreed and so that was that. A national government without a mandate will take over in Greece.

In Italy, Reuters, the financial sector’s news agency, writes that Berlusconi's departure would offer "no speedy solution to a debt crisis threatening the whole euro zone”.

A “worst-case scenario” could see weeks or months of instability and continued “reform inertia”. The answer? “Markets want an unelected technocrat government appointed to pass unpopular reforms needed to improve growth potential in one the world's most chronically sluggish economies.”

So that’s alright then. If the markets want it – and today they were charging an unsustainable 6.73% to lend to Italy – who are ordinary people to deny them their wish? Elections in January? Far too long to wait. And what would they resolve? Nothing!

In one sense, of course, the markets are right. Elections can’t solve the crisis. Debt reduction requires so much pain through spending cuts, unemployment, lower living standards and rising prices that it can’t be achieved with popular consent.

Which means, logically, that some kind of authoritarian rule, a 21st century European dictatorship, is necessary. Dispensing with politicians, even if they are as obnoxious as Papandreou and Berlusconi, is the first step on a slippery road.

Even the right-wing press is getting the frighteners. Janet Daley, the former left-winger turned commentator for the Daily Telegraph, has noted: “Last week, the European Union effectively undermined the democratically elected government of one member state and put another one [Italy’s] on notice.”

In line with Tory anti-EU sentiment, she blames the “Eurocracy” led by Germany and France for denying Greece a referendum and telling Berlusconi that his time is up, adding:

“All those quaint assumptions about the legitimacy of government coming from the consent of the governed must be cashed in for the ‘economic stability’ that the rules of euro membership will provide.”

Interestingly she contrasts the achievements of the Arab Spring with the decline of democracy in the West, “the wilful dismantling of its political inheritance” with the loss of the “right to choose who governs you”.

While her target in the shape of the EU bureaucracy rather than financial markets and capitalism, smacks of small-time nationalism, Daley is perceptive enough to acknowledge that an historical turning point has arrived.

Capitalism and democracy are not natural bedfellows but in conflict with one another. At times of emergency – and that’s what we are in now – the niceties of elections, parliaments etc come under strain. The next step, to outright dictatorship, is a massive one to take. But don’t for one moment think that the ruling elites are not capable of going down that road.

Paul Feldman

Communications editor

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