The original saying was “The King is dead! Long live the King!” That is to say, while individual kings may die, Kingship never dies and is eternal. This theological fiction preserved monarchy during contested successions and other periods of difficulty. Now the fiction that must be preserved is the integrity of sovereign debt: governments come and go but sovereign debt, the debt incurred by the nation, must always be paid.
Yesterday’s three card monte of overdetermined elections produced two coups and one wild card, all in the name of sovereignty. What remains to be seen is whether the fiction of sovereignty can sustain the very different outcomes in Egypt, France and Greece, a result that will be determined as much in the bond market as in any political process. Take away sovereign debt, however, and the world market fantasy comes undone.
Sovereign debt is debt incurred by a nation state. The modern financial system depends on the fantasy that nations will always repay their debts. Huge penalties are levied on any nation that dares to even suggest that it might not do so for fear of exposing the emptiness of sovereign bonds. Actual sovereigns quite often failed to repay their debts, leading in significant part to the revolutions in England (1642), France (1789) and Russia (1917).
Sovereign debt relies on the paradox that, while it will never be repaid, it will always be serviced, generating a “safe haven” for money to become capital. Thus we have seen huge recent flows of money to German and US bonds, as investors cease to trust banks but assume that sovereigns never fail.
Since the US ended the international gold standard in 1971, it has been able to operate a system that has been called “debt imperialism.” As David Graeber has shown, the massive US war expenditures are financed by the sale of treasury bonds, now purchased extensively by China. This “tribute” system continues to function fairly efficiently. It is the non-imperial sovereign debt system that is in crisis.
Since 2008, it has become increasingly common for sovereign debt of troubled economies to be held largely by the banks of that country, a circular system that is only underpinned by low central bank interest rates. While this system supports international debt repayment, it does nothing for economic growth, employment or social services in the nations concerned. This robo-economy lends money to sovereigns to repay their debt, thereby incurring yet more debt and ensuring the continued flatline of the lived economy.
Greece has experienced the full force of this non-quid pro quo. In yesterday’s repeat election, the full force of global authority was brought to bear to keep out Syriza, resulting in a narrow win for New Democracy. While the media attempted to frame the question as to whether or not Greece would remain in the euro system, Syriza had always been clear that it would.
The question was whether the so-called memorandum subjecting Greece to humiliating and devastating cuts in order to “repay” debt with borrowed money would have to be renegotiated. Now that Greece has acquiesced to the Troika, a game is being played in which there will be some modest “concessions” by Merkel and the debt crisis will be postponed until December. The hope is that some solution to the permanent instability of the euro will have emerged by then.
Meanwhile, in Egypt a military coup has been allowed to take place without comment from the G20, suggesting that it had been cleared in advance. Sovereignty is deployed here as force to prevent a transnational grouping of elected pro-Islam governments in the North Afica/Middle East from forming. Both the revolutionaries and the Muslim Brotherhood appear to have been outmaneuvered by the sheer cynicism of this realpolitik.
For a not-particularly-threatening but “Islamic” government in Egypt, like the existing one in Tunisia, would undermine the global binary of “democracy” vs. “terror.” As we have come to learn, this binary means Occupy must be terror, while the heavily-manipulated and hardly decisive election in Greece is “democracy” and a “mandate.” On the other hand, if Hamas wins an election, that is not democracy.
France voted for sovereignty, continuing the fantasy that sovereign nations determine their own future. Whether it will get it is an open question. Hollande has a majority across the French parliament, the first time the Socialist have had this strengh since 1981. At that time, the markets were able to contain any radicalizing tendencies by creating a run on the franc before the new ministers reached their offices. Ironically, the anti-sovereign currency union has provided cover, with the euro ending slightly higher on the day after the election and the French stock market only very slightly down. Will markets come after France once they’re through with Spain and Italy as some have suggested? To pose the question is to answer it: of course they will.
For the slow-motion euro crisis has continued to unfold as if nothing had happened. Interest rates on Spanish bonds climbed well over 7%, the rate that triggered crisis in Ireland and Greece, while Italian rates are moving steadily upwards. There is, of course, no particular reason that 6.9% is OK but 7% is not and the sky has not fallen. However, it’s clear that this new rule has been invented to try and keep things from collapsing too soon. What’s less clear is why this permanent instability has now affected even major economic powers. Some German banks were downgraded last week.
All of these “events” are determined by the young, greedy men who work in the bond markets and like to be thought of as Big Swinging Dicks. Their imagination, such as it is, is populated with porn, sport and video games. In their minds, these men are the sovereigns.
To visualize this, recall the scene from Mad Men (above), in which the arch-capitalist Peter Campbell is forcing a prostitute to seduce him. She does so by saying “You’re my king.” Sovereignty is porn, the bond dealer is king. Can these minds continue to sustain the idea that a contiguous geographical region designated a “nation” can never fail to repay its debts? Or not? And if not, what happens?