Johnna Montgomerie, Goldsmiths, University of London

Greece is back in the news (has it ever left?) with a new debt payment looming and the ruling Syriza Party increasingly marked by internal tensions. The call from some in the party to “rupture now with the lenders” is in response to new rounds of payments due to service the loans absorbed by the Troika of the IMF, European Central Bank and European Commission. It is clear that even if the Greek government could cobble together the current instalment, the next debt payment, due at the end of June, cannot be met.

More cuts to government services (eliminating the insurance-pension system), selling of assets (like Athens’s Port Piraeus), or tax increases (the ENFIA and VAT increases) will still not be enough to squeeze another payment out of a small population of 11 million that has already endured years of austerity.


I have just returned from Greece as part of the #DebtAction Group, a delegation that included academics, think-tankers, journalists, activists and a filmmaker, and which sought to explore the changing politics of debt in the Greek context. What we learned from the people we met in Greece is that there is a profound human and economic cost to pay for debt-led growth. When the good times roll and credit is plentiful the big banks lend without limit; however, when the banking crisis hits, as it did in 2008, it is the borrowers who bear all the downside risk.

Greece puts into sharp focus the real and long term costs of bank bailouts. The main delegation event, at the Numismatic Museum in Athens drew a 100-strong crowd on a Sunday into a meeting room adorned with frescoes and rows of glass covered displays showcasing a trove of ancient Greek coins. The irony was clear for a country which now finds virtually all of its bank loans held by the Troika, and finds itself paying in growth. Damon Gibbon, Director of the Centre for Responsible Credit, highlighted the direct impact of austerity on the Greek economy:

The Bank of Greece figures show debt payments are equivalent to 1.7% of GDP at the same time the Greek economy contracted by -1.8%, this is not a coincidence.”

Finance-led growth means that private credit creation by banks became both the source of growth in the short term – as credit generates economic activity – and the source of contraction in the medium term as interest payments on debt inhibit economic activity.

Banker. Chains. Greek flag. European Commission office. Point made.
Jubilee Debt Campaign, CC BY

The #DebtAction Group travelled to Greece specifically to learn more about household debt restructuring, a key proposal in Syriza’s “Thessaloniki” programme. Like in the UK, and across Europe, household debt is the strategic silence in the endless noise about the public debt crisis. In Greece, private household debt is comparatively small at €100 billion, equivalent to 15% of GDP in 2014; the stock of debt might be small but its effects on households are tangible both economically and politically.

There is a growing consensus that Greece faces a humanitarian crisis because of austerity. When we look at private debt stocks we see that one in three households fear they will lose their house because they cannot service their accumulated financial liabilities (consumer debt, tax debts or mortgage). And at the same time, the number of vacant properties is increasing in step with homelessness. Community groups and activists have been forced to band together to fight evictions and house auctions.

Greece, like the UK, has a system of full-recourse mortgages. This means that the borrower must repay the full amount of the outstanding loan regardless of what the property sells for. So foreclosure makes a family homeless but still liable for the outstanding mortgage loan. This legal framework means banks assume very little downside risk in lending; however, when debt obligations are enforced by banks that received a direct bailout publicly funded bailout by the Troika, then the political response is obviously going to be volatile.

Wrestling with stereotypes.
some guy called Darren, CC BY-NC-ND

The term “personal” or “private” debt highlights how being indebted is isolating when compared to the shared debate about the “public” debt. Being unable to meet debt repayments has led to a rash of suicides in Greece and in response, civil society groups and community organisations have started offering counselling and support to those struggling with stress, anxiety and depression because of the strain of meeting debt obligations.

Shame and regret

This personal shame of indebtedness is compounded by a damaging national context. Greeks are told it is their own cultural failings (laziness) and bad public management (failed modernisation) that got them into debt. This completely ignores the role of the European banking system in providing the means, opportunity and motive for banks to lend without reference to economic realities. Perhaps this omission comes about simply because it is the Greeks, not the banks, that must the pay the costs of boom years.

The stark reality is there is no future in debt-led austerity. Eventually the money will run out to service the debt stock. Perhaps Greece can make the interest payment to the ECB at the end of May, but it is very unlikely to make the IMF payment in June. It is hard to avoid the conclusion that both the Greek state and Greek households have ended up behaving in similar ways to meet their obligations: squeeze expenditure, sell assets and try to find some extra income. Live hand to mouth.

This is Greece now. You cannot pay with money you do not have and the call from within Syriza to effect a “rupture” with its lenders simply reflects this sentiment. To call this a radical left policy completely ignores the economic reality that austerity is not working anywhere in Europe: growth is always stalled, another financial crisis always looms and the spectre of a debt-deflationary cycle haunts the entire continent.

The Conversation

Johnna Montgomerie is Lecturer in Economics at Goldsmiths, University of London.

This article was originally published on The Conversation.
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