The Children of Austerity – debt creates a future of always paying for the past

By Johnna Montgomerie

Rapid Response: Greece, Debt and Europe in Crisis

Two extraordinary events occurred during the first week of July 2015 that give us a glimpse into our collective future. The Greek people voted ‘no’ to an imposed austerity package and the Greek Prime Minister, Alexis Tsipras, agreed a new package of austerity in exchange for some debt relief and emergency liquidity injections, principally so the banks could reopen and issue Euros freely. At the same time the UK government issues an ‘emergency budget’ of new austerity measures; what the emergency was when a budget was already issued four-month earlier by the same Chancellor that has been in charge for 5 years was never explained. In both Greece and the UK the state of ‘emergency’ declared sent a clear message: the public must endure drastic cuts to government services and income transfers in order to pay for the bailing out of the banks.

For all the political and economic differences between the UK and Greece, and there are many, there are also remarkable similarities. There is a powerful political elite committed to protecting the banking industry by taking huge public debts to bailout banks and buy toxic assets, in the first instance, and then continually through Quantitative Easing to scrub banks’ balance sheets clean. The public debt problem in both the UK and Greece context was about using public money to bailout private banks. To pay down these enormous debts there will be cuts to public services and income transfers as well as higher taxes. In practice, in both the UK and Greece this means downloading public debt onto households alongside drastic cuts to the publically funded social safety-net. However striking these similarities are, they remain unseen because the focus is on elite-level politics of emergency summits and emergency budgets.

In the wake of the 1997 Asian Crisis, sociologist Dian Elson, wrote an article analysing the changing architecture of global financial markets and proposed a “view from the kitchen rather than the boardroom, the dealing room and the counting house.” Her detailed account of IMF imposed structural adjustment shows how looking through the lens of the household economy makes visible the mechanisms of austerity where public debt obligations to creditors are paid by downloading costs of social provisioning onto unpaid work in the home, the work largely done by women. Taking ‘a view from the kitchen’ when analysing the emergency austerity measures agreed in Greece and announced in the UK makes visible how debt is reconfiguring power relations between the state and households. Feminist political economists have long argued you cannot understand the economy without understanding what is happening at the level of the household, now is the time to learn this lesson.

Debt dependent economies like the UK and Greece rely on households to accumulate private debt to access housing, to consume every manner of goods and services and, increasingly, instead of a publically funded safety-net. Deepening austerity measures in the UK ensure that households will continue to pay down the public debt by taking on more private debt, be they student loans for the young, home equity loans for pensioners and small businesses, and every other kind of loan for the rest. The Office of Budget Responsibility predictions following the March 2015 budget show wages only nudging upward while household debt-levels rocket up from 150% debt-to-GDP in 2015 to over 170% by 2019. The view from the kitchen is that more and more of daily life will rely on debt: ever-higher mortgages to buy a house, borrow to cope with cost-of-living crisis, borrow to care for elderly parents, borrow to pay for children’s education, borrow to survive after job loss. The household economy of production, consumption and care will centre on how to service interest payments on all that debt. 

In Greece, the newest austerity package will freeze pensions, raise taxes and continue to contract public spending, in particular for transfers and services to households. No one is denying that the Greek households have endured over five years of harsh austerity that created unemployment, small businesses going under, rising homelessness, widespread over indebtedness which is, in no uncertain terms, both an economic and humanitarian disaster. It was the so-called ‘Children of Austerity’ that delivered the No-vote on proposals for renewed austerity. The view from the kitchen shows how Greek government cuts target the elderly, the young, and the small ‘family’ business which directly links back to the economy of care within households: multi-generational and multi-family households mean that kinship shapes whether debt obligations are met.

The ‘children of austerity’ are all those that face their future working life shaped by the failed response to the 2008 banking crisis. The view from their kitchen is bleak. The best case scenario is another decade of economic malaise where well-paying secure jobs will not return and incomes will not go up, but interest payments on household debts and tax payments to service public debts are enforced at all costs. Of course that assumes that there is no debt-deflationary spiral and that financial markets remain crisis free – unlikely given the increasing frequency and intensity of financial crises since markets were deregulated in the mid-1980s (starting with 1987 LTCM in the US, 1992 EU Exchange Rate Mechanism, 1997 Asian Financial Crisis, 2001 Dot com burst and then the 2008 global financial crisis). The everyday realities of living in a debt economy are becoming clear: the only certainty is more debt and taxes.

Johnna Montgomerie is Lecturer in Economics at Goldsmiths. She is a contributor to the Political Economy Research Centre. She tweets at @j_montgomerie

Photo Credit: Lepetitlord [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)]

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