Austerity is the monetary policy implemented by governments during times of economic hardship. Its aim is to lower a nations spending deficit by cutting public services and state benefits. The policy has been implemented by most nations in recent years thanks to the global recession and debt crises of 2008. As the economy worsens banks could limit the amount of cash they will lend to governments, as a result this will force the government to appeal for funds from organisations such as the International monetary fund or the European central bank. In return they will ask the governments to cut spending before they act as a lender of last resort.
According to the British Prime Minister David Cameron the world has entered an age of austerity. He, along with many other leaders has vowed to end excessive government spending.
Impact of Austerity
The implementation of Austerity measures are often only used as a last resort, and with good reason. The policy damages the standards of living for the nation’s population and put the squeeze on many a household’s budget. Governments tend to cut back on all services that it provides, often leading to severe job cuts, price hikes and tax increases. Currently many EU governments and the IMF believe that Austerity is the key to the Euro zones problems, it remains to be seen if it will help or has inflicted further damage.
Greece is the prime example of austerity in action. Public unrest, strikes and growing anger at the EU and the Greek government has been the result. Many analysts believe that austerity is still the answer but governments have cut too hard and too fast.
Austerity is a highly controversial policy and only time will tell if it will succeed in saving the Eurozone or lead to its eventual destruction.