What are austerity measures?


Austerity measures are attempts to significantly curtail government spending in order to control public debt, especially when the country is under the threat of default on its bonds.

The global economic downturn that began in 2008, many governments with reduced tax revenue and found that some considered excessive costs. In several European countries, including the United Kingdom, Greece and Spain, have turned to savings as a way to mitigate budget problems. As a result, the budget deficit is growing rapidly. Austerity has become almost mandatory in Europe, where Eurozone members are not able to solve the growing debt by printing its own currency. As their default risk increases, creditors are putting pressure on these countries to actively deal with the issue of cost.

The purpose and effectiveness of austerity measures

While the purpose of austerity is to reduce public debt, their effectiveness remains the subject of heated debate. Proponents argue that the deficit could stifle the economy as a whole, which limits tax revenues. However, opponents believe that government programs are the only way to offset the decline in private consumption during the recession. Robust public sector spending, they suggest, reduces unemployment and therefore increases the number of income-taxpayers.

Austerity can be controversial for political as well as economic, reasons. Popular targets for reducing expenditures include pensions for public employees, welfare and Government health care programs that disproportionately affect low income, at a time when they are financially vulnerable.

(For associated reading, see: 7 of austerity measures for your personal budget.)

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