(The latest version of this page is at Pattern Descriptions. An archived copy of this page is held at https://www.patternsofpower.org/edition02/3345.htm)
The money in the financial system remains the property of the lenders; the borrower only has the use of the money and doesn't own it. This tilts the power relationship in favour of the lender, whereas in other markets the two negotiating parties are in a more nearly equal relationship. From a governance perspective this is significant in two ways:
· The lender can apply continued governance over the behaviour of the borrower. In the case of companies, shareholders can play an important part in corporate governance.
· The lender can place conditions on the borrower which are particularly significant when the borrower is a government, because the conditions may be politically very onerous.
The power of international lenders has been seen as politically illegitimate by people in the debtor countries; in Greece, for example, this led to violent protest in June 2011.[1]
© PatternsofPower.org, 2014
[1] On 28 June 2011, the BBC published an article entitled Greece protest against austerity package turns violent; this was available in April 2014 at http://www.bbc.co.uk/news/world-europe-13935400.