If man proposes and God disposes, it is the bond market that deposes.
Two prime ministers have resigned in the past week – George Papandreou of Greece and Silvio Berlusconi of Italy – to be replaced by bankers of no known party political affiliation. Formally, what happened in each country was that the prime minister chose to resign and the president nominated a successor who could command the support of a majority in parliament. But the formality does not begin to capture what really happened.
In each country, there is mounting concern that the country’s public debt will become unpayable. The debts are so large – at 142 and 129 per cent of GDP in Greece and Italy respectively – and the interest rates charged so high – clearing 7 per cent in the case of Italy at one moment last week – that the respective national governments will be unable to borrow the money they need in order to function. Without access to the international markets, the public services will grind to a halt. Teachers and civil servants will go unpaid, public hospitals will run out of medicines, the fabric of modern life will start to come apart.
It is to avoid this possibility that the prime ministers sacrificed themselves. The international investors, from whom further funds might be forthcoming, wanted greater reassurance about the future health of the public finances than those particular politicians could give. Greek party politics is rotten and Silvio Berlusconi’s administration was also rotten. It is not surprising that potential lenders thought twice about entrusting their money to such systems. They wanted something better and more reliable.
The replacement of Mr Papandreou and Mr Berlusconi by Lucas Papademos and Mario Monti has drawn criticism from the eurosceptics. This shows that the euro is fundamentally undemocratic, they say, if elected politicians can be removed from office without consulting the voters. No-one has voted for their successors: how can that be right?
But while this is a valid criticism of a democracy in normal times, these are not normal times in Greece and Italy. In the UK, there was no general election between 1935 and 1945: there ought to have been an election in 1940 but times were so bad that this was suspended. In those countries that are clinging on to their financial existence by their fingertips, something similar – although not as severe – is required. The constitution is observed, but party politics is, in a sense, suspended in the cause of the national interest. Have no British politicians ever said that the national interest trumps partisan political loyalties?
And is it the euro that has provoked this crisis? No, it is the bond market. If there is a force that challenges the normal conduct of political business, it is the demand of investors for security and profit. The critical factor in the health of a government is not the opinion polls but the bond yields. If we are worried about unaccountable political influence, who voted for the bond market?