Debt, Austerity, and the Structural Responses of Social Rights

Austerity measures—the set of economic policies implemented with the aim of reducing government budget deficits—are a key component of economic adjustment programmes prescribed by the international financial institutions in the context of their efforts to address sovereign debt and other financial crises. They essentially entail public spending cuts, tax increases, or a combination of both. While multilateral creditors impose austerity in all debt restructuring programmes, economists generally agree that in order to sustain growth, productivity and consumer confidence, it is imperative that in situations of debt crises the government pour money into the economy (as was the case in post-2007 USA) rather than restrict liquidity. Hence, austerity is fundamentally antithetical to financial sense and if the aim is to repay creditors then higher consumer spending is beneficial as are tax decreases. The chapter explains austerity from a legal and financial perspective and argues that its imposition serves political objectives.