On Saturday, London rocked to the sounds of 250,000 marchers protesting austerity in the U.K. Organized by The People's Assembly Against Austerity, the day's events (marches were also held in Liverpool and Glasgow) announce the beginning of a campaign against the cutbacks to services by the Conservative government headed by David Cameron.
Recently returned to power with an unexpected majority, the Conservatives wants to resume the tight spending policies -- temporarily suspended in the run-up to the election -- that have worsened unemployment all over Europe.
Health care, education, public housing -- all services that matter to people -- are to be cut; and the U.K. economy weakened as a result.
It is not enough that the 19 Eurozone economies have an unemployment rate of 11 per cent and permanent recession, the already slow-growing U.K. (second worst in the G7 since 2007) must do new budget cuts as well.
Austerity resembles a form of madness. Instead of meeting basic human needs, governments set out to meet artificial budget targets, in spite of the consequences for human lives.
Austerity is primarily aimed at reducing government borrowing. Spending cuts are deemed necessary to reduce what the Financial Times calls unsustainable budget deficits, financed by selling government bonds.
Governments of both centre-left and centre-right have introduced austerity across Europe, but the idea did not originate with them.
Both social democratic and neoliberal market economists defend austerity, but the reasoning (do not spend more than you receive in taxes) behind the policy is not strong enough to explain why the doctrinaire approach was adopted.
Big capitalists support austerity, but cutting public spending is bad for business. Mainstream media sell austerity as if it were new and true, even while it undermines audiences and readership, and drives away advertisers.
The remarkable willingness to pursue austerity, despite its destructive consequences, originates in the people who run the bond market: investment bankers, hedge-fund operators, pension-fund managers, and wealthy rentier capitalists of all stripes.
The people who profit from austerity are behind it.
The game for the bond-market dealers is to make money selling corporate debt, since that is where the bankers' fees add up the fastest.
The more government bonds dealers have to sell, the less the need for pension funds and investors to load up on corporate debt, and the lower the profits for the investment houses that sell corporate bonds.
Government deficits create the need for borrowing so the financial market "austerians" rant about the need to balance government budgets, so as to maintain the value of existing government debt, and leave room for new corporate debt.
Private companies rely on selling bonds to finance business expansion. The bond market overshadows the stock market. Stock markets, where money is raised through selling ownership shares, is limited to well-established companies with a record of profit-making.
The international bond market is huge; outstanding securities amount to a whopping $20.89 trillion; and that does not include domestic bonds.
Bond-market dealers rank borrowers according to their ability to repay. Sovereign states head the list. Governments pay the least amount of interest on new issues of bonds; more risky businesses pay the highest rate.
Governments can borrow today at rates as low as one per cent. Less desirable corporate "junk" bonds are issued at rates as high as the low teens.
Government debt sells itself and provides less commission income for brokers.
The more government bonds in the marketplace, the more difficult it is to maintain a lively market in corporate bonds. The greater the volume of government debt being traded, the more likely the market for corporate bonds will worsen.
Bonds are denominated by currency. U.S.-dollar bonds make up the largest market, and the U.S. government is the biggest issuer of bonds by far. The hegemonic power of the U.S. in world politics explains the ability of the U.S. government to sell bonds in virtually unlimited amounts, and the willingness of international buyers to hold them.
The bond market is tightly integrated with currency markets. Sovereign governments with currencies not well recognized or widely traded will resort to borrowing in U.S. dollars. For a hefty fee, investment dealers will help poorly rated borrowers get access to the bond market.
Once they joined the Eurozone, Greek governments took on too much debt on the advice of greedy investment bankers.
Bonds denominated in euros make up a substantial portion of the non-U.S.-dollar part of the world bond market, and about 60 per cent of euro-denominated bonds are government bonds. For the austerians, that is too high a percentage.
The city of London is a leader in issuing international debt securities, and its activities are not limited to debt issues in U.K. pounds. The U.K. government wants it to be the leader in writing corporate debt in euros, dollars and other currencies.
Countries following austerity dictates end up in trouble. Germany, once home to an economic miracle, but now with the third-weakest economy in Europe, has followed a low-government-borrowing model. It now suffers from a serious public infrastructure deficit. Roads, bridges and public building are in disrepair and need of refurbishing.
Wage austerity follows government austerity. Strikes are a major feature of German working life, another result of austerity, as leading European thinker Wolfgang Streek explains.
The intellectual bankruptcy of European social democracy has meant that political opposition to austerity must take to the streets in an attempt to shape public opinion. The battle joined in the U.K. will be watched closely around the world.
Duncan Cameron is the president of rabble.ca and writes a weekly column on politics and current affairs.
Photo: RonF/The Weekly Bull/flickr
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