Socialist Worker

What are government bonds and why do they matter?

Bond markets have huge power unless we fight back

Issue No. 2228

Bonds are a way for corporations or governments to raise money. They are the main way states meet the gap between their spending and their income from tax.

They work like an IOU, allowing governments to raise money with a promise to repay in the future. Interest is paid on the money borrowed until it is repaid.

Bonds are mainly owned by banks—including central banks, like the Bank of England—insurance companies, pension funds and other rich investors.

If an economy is in crisis, buyers of bonds demand a higher rate of return. The bond market can even go “on strike”—and refuse to buy any further government debt.

This can create a huge financial crisis, and gives bondholders enormous power to dictate to governments, forcing them to impose harsh austerity measures if they want to borrow.

German chancellor Angela Merkel recently expressed a fear that there is a limit to the pain that can be imposed on Europe’s workers without provoking uncontrollable revolts.

She used this to argue that the bankers and the rich must be prepared to take a share of the pain. But it’s a battle that the bondholders are likely to win.

We should demand the wealth of bond holders stops being protected—they should be made to pay for the crisis they helped create. And if the rich have money to lend governments then they should be forced to pay more tax.

To make that happen, we’ll need to turn Merkel’s fear of powerful mass movements and revolts into a reality.


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