Global Crisis/Innovation Blog

  The New Democracy: Bond Traders Rule!

By Shlomo Maital

  A new form of democracy has just been born – yesterday in fact.  

  Greece appointed Lucas Papademos as Prime Minister designate.  He ran Greece’s Central Bank, at the time Greece bluffed its way into the European Single Market and euro, with false data, and was vice governor of the European Central Bank. He has consistently opposed any ‘haircut’ (reduction) of Greece’s debt.

  Italy is apparently appointing Mario Monti, former European Commission competition commissioner, as its new Prime Minister, to replace Silvio Berlusconi and lead Italy toward new austerity measures.

  Why were these new leaders chosen?  In the sole desperate hope that the bond markets will like the moves sufficiently, to raise the price of Italy’s and Greece’s sovereign bonds, enough to keep those two countries solvent, able to continue to borrow in capital markets so they can avoid default and bankruptcy.  

  Will it work?  Will the bond traders agree? Will they give a Facebook “thumbs up”? (Like!). Or will they give a Facebook thumbs down?   Everything depends on these bond traders – the future of Europe, the future of the Euro, and perhaps the future of global markets.

    This is the new democracy.  A key political decision is being made, NOT by the people of Greece, and not by the people of Italy, but by the faceless millions who buy and sell bonds in global markets.  And they, of course, are driven not by considerations of the wellbeing of Italians and Greeks – but by the wellbeing of their bonuses and bottom lines.  

    Not a very good system, is it!  It is not, in fact, democracy any longer.  It is the oligarchy of money.  We thought the power of financial markets had been curtailed and regulated after the global crisis of 2007-9 – but in fact, it has if anything grown.