Exchange Rate FAQs

What are Austerity measures?

Austerity measures are strict rules imposed by a government to attempt to cut debt and unsustainable spending costs. The measures are designed to cut budget deficits, lower spending and cut a government’s welfare and services bill. This impacts benefits and public services.

In a country that has taken loans from the IMF and defaults on its debts then these measures can be imposed upon it by the international community. A situation like that can arise when a government has borrowed and spent too much. Banks may lose faith in the government’s ability and may refuse to roll over existing debts or begin to charge high interest rates. Most European countries have been forced to impose these measures in recent years.

Greece is the main example of what can happen when the measures go too far. Civil unrest and the resignation of prime ministers and presidents is just a couple of the consequences.