Pro Austerity measures

Austerity is a set of economic

policies implemented with the
aim of reducing government
budget deficits. Policies grouped
under the term 'austerity
measures' may include spending
cuts, tax increases, or a mixture
of both

NO PAIN NO GAIN
If you dont pay for your mistakes, you
dont learn from them. Its a painful lesson,
but Greece, Portugal and the rest need to
go through it. If not, they will soon fall back
into their bad habits, confident that their
prudent northern neighbours will bail them
out.

WHAT DOESNT KILL YOU MAKES YOU

STRONGER
Austerity will leave European economies

leaner, meaner and more competitive. Eurozone nations need shock treatment to ensure
they can hold their own in the globalized
economy. Its their failure to swallow the
economic medicine that has left the likes of
Portugal and Italy with a decade of stagnant
growth.

FREE LUNCH
In a currency union you have to play by the
rules. The only alternative to austerity is asking
the hard-working taxpayers of Germany, the
Netherlands and other fiscally responsibility
countries to fork out for a feckless southern
spending spree. That is morally wrong and it
would have grave political consequences in
Europe, turning northern voters towards antiEuropean popularists. Its already happening in
the Netherlands and Finland.

AUSTERITY = RECOVERY
There can be no real recovery unless nations
get their public finances in order. You simply
cant spend your way out of a recession. Even
in normal circumstances thats a recipe for
inflation and instability. Within the euro-zone it
would place untenable strains on the currency
union. Markets will only be reassured by
credible, long-term plans to cut deficits and
debt. Only then can sustainable growth
resume.

Budget Deficits are too high and

need to be reduced.
If budget deficits are not cut, it will lead to
higher bond yields (e.g. in case of Greece, Spain
and Ireland).Higher bond yields increase cost of
financing the deficit. (An argument is that
future generations will be paying interest on
current levels of debt)

Cutting budget deficits will give investors

greater confidence about the long term

performance of the economy. Lower debt
levels will encourage the private sector to
invest

Government spending as a % of GDP has

grown too high crowding out (the more

efficient) private sector. Many claim that
governments with lower share of GDP tend
to be more successful, though evidence is
very mixed. (is large government bad for
growth?)

Examples of countries who have

pursued austerity and later showed
strong economic growth.
Canada in 1993-96, cut fiscal deficit but
maintained strong growth. More recently,
supporters of austerity argue that the rebound
in economic growth in Latvia and Estonia show
that countries who pursue fiscal austerity can
overcome their problems. ( Latvia showed
fastest growth of 5.1% in past 12 months)