"Why Austerity is a Dangerous Idea"

by NickM on April 20, 2015 - 6:03pm

I was given an article which reports the austerity situation in Greece. In the article “Why Austerity is Dangerous Idea” published in Time Magazine, Mark Blyth describes the situations where austerity can deal its worst blow on an already indebted economy. When the government of a country imposes an austerity budget on its people, it will often cut spendings on domestic and international enterprises and institutions. This means that the decrease in government expenditures with allow the regeneration of the government budget because the funds which previously went towards institutions will stay in the same place instead. Factors that will also contribute to the regeneration of the government’s budget are other countries’ investments in its institutions (such as exports). If a country enacts budget cuts in the public sector, a larger part of the income obtained from foreign investments would be purposed to rebuilding the government budget rather than in expenditures in the public sector. If foreign investments remain constant and fluid over time, the government budget will theoretically repair over time. In his article, Blyth uses Greece as an example. Greece, being a country that is a part of the eurozone, receives a large portion of its annual income from the investments of its fellow eurozone countries. When Greece received its first austerity package in 2010, it had more significant chances of clearing its government debt than it does now. At the time, Greece still received significant financial support from its eurozone partners through its exports and their investments. Currently, many of Greece’s eurozone partners are going into debt, meaning that they gradually have less money to invest in Greece. This means that Greece has a smaller chance of clearing its debt now that its government and its eurozone partners are in debt. This same concept can be applied to Quebec: The ideal time to rebuild are debt is when our foreign business partners are not also in debt.

Bibliography

http://ideas.time.com/2013/04/18/why-austerity-is-a-dangerous-idea/