In
economicsEconomics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
,
austerity is when a national government reduces its spending, to pay back
creditorA creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
s. Austerity is usually required when a government's fiscal
deficit spendingDeficit spending is the amount by which a government, private company, or individual's spending exceeds income over a particular period of time, also called simply "deficit," or "budget deficit," the opposite of budget surplus.-Government deficits:...
is felt to be unsustainable.
DevelopmentEconomic development is the increase in the standard of living of a nation's population associated with sustained growth from a simple, low-income economy to a modern, high-income economy...
projects, welfare programs and other social spending are common areas of spending for cuts. In many countries, austerity measures have been associated with short-term
standard of livingStandard of living is generally measured by standards such as real income per person and poverty rate. Other measures such as access and quality of health care, income growth inequality and educational standards are also used. Examples are access to certain goods , or measures of health such as...
declines until economic conditions improved once fiscal balance was achieved (such as in Canada under
Jean ChrétienJoseph Jacques Jean Chrétien , is a Canadian politician who was the 20th Prime Minister of Canada from November 4, 1993 to December 12, 2003, and leader of the Liberal Party of Canada from 1990 to 2003.-Early life:Chrétien was born on January 11, 1934 in Shawinigan, Quebec, as the 18th of 19...
, and Spain under
Felipe GonzálezFelipe González Márquez is a Spanish socialist politician. He was the General Secretary of the Spanish Socialist Workers' Party from 1974 to 1997. To date, he remains the longest-serving Prime Minister of Spain, after having served four successive mandates from 1982 to 1996...
).
Private banks, or institutions like the
International Monetary FundThe International Monetary Fund is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments...
(IMF), may require that a country pursues an 'austerity policy' if it wants to
re-financeRefinancing refers to the replacement of an existing debt obligation with a debt obligation bearing different terms. The most common consumer refinancing is for a home mortgage.- Advantages :...
loanA loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s that are about to come due.
In
economicsEconomics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
,
austerity is when a national government reduces its spending, to pay back
creditorA creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
s. Austerity is usually required when a government's fiscal
deficit spendingDeficit spending is the amount by which a government, private company, or individual's spending exceeds income over a particular period of time, also called simply "deficit," or "budget deficit," the opposite of budget surplus.-Government deficits:...
is felt to be unsustainable.
DevelopmentEconomic development is the increase in the standard of living of a nation's population associated with sustained growth from a simple, low-income economy to a modern, high-income economy...
projects, welfare programs and other social spending are common areas of spending for cuts. In many countries, austerity measures have been associated with short-term
standard of livingStandard of living is generally measured by standards such as real income per person and poverty rate. Other measures such as access and quality of health care, income growth inequality and educational standards are also used. Examples are access to certain goods , or measures of health such as...
declines until economic conditions improved once fiscal balance was achieved (such as in Canada under
Jean ChrétienJoseph Jacques Jean Chrétien , is a Canadian politician who was the 20th Prime Minister of Canada from November 4, 1993 to December 12, 2003, and leader of the Liberal Party of Canada from 1990 to 2003.-Early life:Chrétien was born on January 11, 1934 in Shawinigan, Quebec, as the 18th of 19...
, and Spain under
Felipe GonzálezFelipe González Márquez is a Spanish socialist politician. He was the General Secretary of the Spanish Socialist Workers' Party from 1974 to 1997. To date, he remains the longest-serving Prime Minister of Spain, after having served four successive mandates from 1982 to 1996...
).
Private banks, or institutions like the
International Monetary FundThe International Monetary Fund is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments...
(IMF), may require that a country pursues an 'austerity policy' if it wants to
re-financeRefinancing refers to the replacement of an existing debt obligation with a debt obligation bearing different terms. The most common consumer refinancing is for a home mortgage.- Advantages :...
loanA loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s that are about to come due. The government may be asked to stop issuing
subsidiesA subsidy is a form of financial assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more...
or to otherwise reduce public spending. When the IMF requires such a policy, the terms are known as 'IMF
conditionalitiesConditionality is a concept in international development, political economy and international relations and describes the use of conditions attached to a loan, debt relief, bilateral aid or membership of international organizations, typically by the international financial institutions, regional...
'.
Austerity programs are frequently controversial, as they have an impact on the poorest segments of the population and often lead to a wider separation between the rich and poor. In many situations, austerity programs are imposed on countries that were previously under dictatorial regimes, leading to criticism that populations are forced to repay the debts of their oppressors.
Examples of austerity
- Austerity in Israel
Austerity in Israel: From 1949 to 1959, the state of Israel was, to a varying extent, under a regime of austerity , during which rationing and similar measures were enforced.-Rationale:...
(1949–1959)
- Special Period
The Special Period in Peacetime in Cuba was an extended period of economic crisis that began in 1991 after the collapse of the Soviet Union and, by extension, the Comecon. The economic depression of the Special Period was at its most severe in the early-to-mid 1990's before slightly declining in...
(Cuba, 1991 onwards, after the collapse of the Soviet Union)
- Post-War United Kingdom see,: Britain-Economic history- Post-War era, 1945–1959, Rationing in the United Kingdom, Utility furniture
Utility furniture refers to furniture produced in the United Kingdom during and just after during World War II, under a Government scheme which was designed to cope with shortages of raw materials and rationing of consumption...
.