In favor of Austerity
My 3 arguments
What is Austerity?
In economics, it describes policies used by governments to reduce budget deficits during adverse economic conditions. Using tools such as: spending cuts, tax increases, or a mixture of the two. Austerity policies demonstrate governments' liquidity to their creditors and credit rating agencies by bringing fiscal income closer to expenditure.
In a currency union you have to play by the rules. The only alternative to austerity is asking the hard-working taxpayers of Germany, the Netherlands and other fiscally responsibility countries to fork out for a feckless southern spending spree. That is morally wrong and it would have grave political consequences in Europe, turning northern voters towards anti-European popularists. It’s already happening in the Netherlands and Finland. Table 1. – Greek Financial Bailout Package (in bil. US$) Finance Gap 2010 2011 2012 2013 Total Total 53.6 56.4 33.8 11.3 155.1 EUR 38.9 41.0 24.7 8.2 112.8 IMF 14.7 15.4 9.2 3.1 42.3 Source: IMF – Greece: Article IV Consultations, 2009
AUSTERITY = RECOVERY
There can be no real recovery unless nations get their public finances in order. You simply can’t spend your way out of a recession. Even in normal circumstances that’s a recipe for inflation and instability. Within the euro-zone it would place untenable strains on the currency
union. Markets will only be reassured by credible, long-term plans to cut deficits and debt. Only then can sustainable growth resume. If governments did not cut spending, countries would soon cross a deadly debt-to-GDP threshold, after which economic growth would be permanently impaired. The countries would also be beset by hyper-inflation, as bond investors suddenly freaked out and demanded higher interest rates.
WHAT DOESN’T KILL YOU MAKES YOU STRONGER
Austerity will leave European economies leaner, meaner and more competitive. Euro-zone nations need shock treatment to ensure they...
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