During the European Sovereign Debt Crisis, Various Politicians and Intellectuals Raised the Cry That the Bond Market Had Displaced Democracy in Imposing Austerity Policies

This desire for security is crucial, too, in explaining the leverage which the government exercises upon the bond market when it comes to its own debt. Those who deny this leverage, who instead hold that it is exercised by the bond market over governments, often point to that species of financial life known as the bond vigilante. Originally uncovered by Ed Yardeni, a well-known investment research consultant, a bond vigilante is someone who roams the sovereign debt market on the lookout for governments that are pursuing macroeconomic policies to which investors are liable to object. Such policies include elevated budget deficits, escalating debt, and a loose monetary regime. Once such malefactors are identified, the bond vigilante will join forces with his or her fellows in the cause of market justice and aggressively bet against the debt securities of the country involved. With the costs of funding its debt increasing as a result, the country is forced to obey the bond vigilante. Depending on the problem at hand, the budget deficit will have to be slashed, or the money supply tightened, or both. Given that those who take part in this type of trading are described as vigilantes, the case is already stacked against their actually pursuing justice. It is a way of speaking very much in accord with the opinion of bond market critics who see traders there as having usurped the democratically granted authority of governments to oversee the economy. There was a slew of books and articles published in the 1990s stating this charge. The issue then went dormant in the early to late 2000s, until it reemerged amid the European sovereign debt crisis that began in 2010. Various politicians and intellectuals once again raised the cry that the bond market had displaced democracy in imposing austerity policies.

--George Bragues, Money, Markets, and Democracy: Politically Skewed Financial Markets and How to Fix Them (New York: Palgrave Macmillan, 2017), 109-110.