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by Werner Vontobel
Tuesday, Oct. 03, 2006 at 6:38 PM
Do the capital markets undermine democracy?
CREDITOR INSTEAD OF CITIZEN –
DEMOCRACY AS A DISCONTINUED MODEL
By Werner Vontobel
[This article published in: Blick, 9/23/2006 is translated from the German on the World Wide Web, ]
The global capital markets destroy democracy. Economic historian James Macdonald said this. The most recent events in Budapest, Warsaw, Berlin and Brazil confirm this.
Last week in Hungary, the public discovered a tape recording in which Prime Minister Ferenc Gyurcsany admitted: “We lied in the last one-and-a-half to two years.” Mass protests followed. The police and hordes of rightwing extremists and hooligans staged wild street battles.
The reason for the lies is clear: Hungary is heavily indebted. The state debt amounts to 70 percent; the total debt to foreign countries is even 170 percent of the gross domestic product. Hungary’s government is the hostage of creditors. Every wrong decision (from the view of the finance markets) can massively devalue the forint and make remote Hungary’s entrance in the Euro-alliance. Thus the government obeys the finance markets and lies to the voters.
In heavily indebted Brazil, Lula da Silva four years ago had his election program dictated right from the start by the “markets” or the International Monetary Fund. The creditors were also the main beneficiaries of his first term in office.
The NZZ (Neue Zurich Zeitung) summarized: “Da Silva has to look good to the financial investors at home and abroad. Brazil has paid back the billion credit to the International Monetary Fund. Banks, state pension funds and private investors at home and abroad have benefited enormously on the background of high real interest rates. The local bankers posted record profits year after year. It is no wonder that praise for da Silva can be heard above all from the diverse actors of the finance markets.
In Poland, the “markets” enforce their will. Zula Gilowska, “a very respected economist in the finance markets” – according to NZZ – was returned this week to the top of the finance ministry. The constitutional court declared unconstitutional a parliamentary commission investigating bank privatizations.
In the EU, the power of the markets over democracy is even institutionalized. Under pressure of the creditors, the EU states actually renounced on active finance- and currency policy. They signed the Maastricht treaty that limits the indebtedness and new indebtedness of the states. In addition, a watchdog was created with the European Central Bank (EZB) that barks when a government even thinks of weakening the rights of creditors.
Do the capital markets undermine democracy? This question was hardly ever raised because all criticism of free capital transactions and democracy was regarded as politically incorrect. Therefore responsibility was simply shifted to the governments that do not dare say any unpleasant truths to their voters. Democracy would be good. However the governments do not observe the rules of the game.
In his book “Free Nation Deep in Debt,” US economic historian James Macdonald has now historically illumined and reopened the relation of democracy and the capital markets. He defends the thesis that democracies always arose where the state had to become indebted to its citizens – mostly in order to wage wars. The citizen as creditor is the best citizen. Macdonald shows this with dozens of examples, beginning with Athens, Florence, France and the US.
The times of the citizen-creditor and thus of democracy are past, Macdonald argues. State debts today are held by funds, pension chests, banks and other finance intermediaries. In the US, only 10 percent of treasury notes are still directly in the hands of private citizens. In addition, the creditors have created powerful institutions like the EZB, rating agencies and stock market boards. With a single announcement (expert jargon, downgrading), they can trigger an investor strike and appear as global unions of capital, so to speak.
Professor James K. Galbraith from the University of Texas shares Macdonald’s pessimism. In a book review, he asks: “Can a state be really democratic when it is led by the nose by the banks? How can a democratic will arise when the US has a tax system that spares the most important investors and lays the burden above all on the shoulders of the poor?”
The consequences are obvious. Voters feel that governments can and will no longer enforce the democratic will. They lose faith in politics. In Germany, only 38% of the voters still believe the parties are capable of solving political problems. In France, political problems are increasingly resolved on the streets. A law on dismantling termination protection for young workers was prevented by a national rebellion.
The fraud lies in the system. The servants of the system, above all the bank managers, may believe accumulated capital will benefit everybody. This capital only flows to the bank accounts of a few who lead a comfortable life. Most people who work hard for a meager wage do not have any bank accounts.
J. Balmer, Tafers
The capital markets ruin democracy… Money rules the world!
HZ, St. Gallen
Knowing who are the main creditors in Switzerland and where the interests for the state debts flow would be interesting.
That capital governs and not the “people’s representatives” was always true and will remain true. Not even a strong government or “democracy” will ever change this.
Fritz Walder, Arbon
TEAR IN THE CARTEL OF THE CREDITORS
Democracy is threatened. The global power cartel of creditors has more pull. However the people lose patience when creditors ignore the democratic rules. Rebellions and street battles are not very efficient means for manifesting the people’s will but represent a threatening potential and a counter-power. A collapse of state power and the uncertainty connected with that collapse are very dangerous for creditors because they have much to lose. Therefore the world order must be renegotiated somehow and the balance of power reconfigured.
This process is already underway. The creditors are no longer the same as the former creditors. The credit balances today are in China, Japan and Venezuela. New York and the IMF in Washington are no longer the sole “masters of the universe.” A power struggle is occurring in the cartel of the creditors. The debtors could make hay as the “block-free” once played off the two superpowers, the US and the USSR, against one another.
LES JEUX SONT FAITS, REIN NEVA PLUS!
Claude Beck, Cannes
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