Fiscal austerity
재정긴축
Policy that aims to reduce a government budget deficit through spending cuts, tax increases or both. It is often used by governments that find it hard to repay or to borrow, to show fiscal discipline to creditors and credit rating agencies, and international financial institutions such as the International Monetary Fund (IMF) may demand it as a condition of a bailout. Critics argue that applied in a slump it cuts demand further, raising unemployment and lowering growth, so that the ratio of debt to GDP can rise even as the deficit falls.
In depth
What a government spends is itself part of gross domestic product (GDP), and one person's spending is another's income. So in most macroeconomic models cutting government spending raises unemployment in the short term. Jobs disappear first in the public sector and then in the private businesses that depended on state contracts and on the spending of public employees. Austerity through higher taxes cuts household disposable income and so consumption. If everyone cuts spending at once, the economy can be trapped in the "paradox of thrift", deepening the recession.
Austerity is chosen nonetheless when there is a threat that a government cannot honour its debts: when it has borrowed in a currency it has no right to issue, or when it uses the currency of an independent central bank legally restricted from buying government debt. Eurozone members were in the second position. When banks and investors lose confidence and refuse to roll over maturing debt or demand very high interest rates, the government is pressed to show "fiscal discipline" by cutting spending. The International Monetary Fund has demanded austerity as part of structural adjustment programmes when acting as lender of last resort. Sometimes debt swells after a banking crisis because the state takes over private banks' debts: after Ireland assumed the debts of its banking sector in the European debt crisis, calls followed to cut back the profligacy of the public sector.
The argument over austerity is old. In the Depression John Maynard Keynes declared that "the boom, not the slump, is the right time for austerity at the Treasury." Keynesian economists today hold that budget deficits in a recession reduce unemployment and help growth, and Paul Krugman argues that since a government is not like a household, cutting its spending in a downturn worsens the crisis. On the other side, Alberto Alesina and others argued for "expansionary austerity": austerity can promote growth where cuts in government spending are offset by greater private consumption, investment and exports. The political economist Mark Blyth traces austerity to liberal economics' view of the state and of sovereign debt as deeply problematic, and argues that it became a doctrine of neoliberalism in the 20th century. The economist David Kotz read the austerity that followed the 2008 crisis as an attempt to preserve the neoliberal capitalist model. Clara Mattei sees austerity less as a way to fix the economy than as a weapon of class rule that suppresses working-class revolt and closes off alternatives to capitalism, and traces its origins to Britain and Italy after the First World War.
In the 2010s the eurozone became the testing ground of this argument. During the European debt crisis many countries embarked on austerity and cut their deficits relative to GDP from 2010 to 2011, yet all except Germany saw their ratios of debt to GDP rise; Greece's rose from 143 percent in 2010 to 165 percent in 2011. Eurozone unemployment reached a record 12.1 percent in March 2013. In October 2012 the IMF announced that its forecasts for countries implementing austerity had been consistently overoptimistic: it had assumed a fiscal multiplier, the fall in GDP from a fiscal consolidation of 1 percent of GDP, of 0.5, whereas the actual figure ranged from 0.9 to 1.7. Martin Wolf concluded that small contractions bring recessions and big contractions bring depressions. Greece lost 25 percent of its GDP during the crisis, and although its debt itself barely grew, the debt ratio shot up from 127 to 179 percent because GDP fell.
In Britain the Conservative leader David Cameron proclaimed an "age of austerity" in April 2009, and in 2010 the Conservative and Liberal Democrat coalition began an austerity programme of deep cuts in public spending. Studies have blamed austerity for at least 120,000 deaths in the UK between 2010 and 2017. David Stuckler and Sanjay Basu attributed up to 10,000 additional suicides in Europe and the United States to austerity programmes. A study of 166 European elections since 1980 found that austerity raises abstention and the vote for non-mainstream parties, deepening political polarisation.