In short, austerity helps bring financial health back to governments. 1 Default risk can spiral out of control quickly and, as an individual, company, or country slips further into debt, lenders will charge a higher rate of return for future loans, making it more difficult for the borrower to raise capital.

Why is austerity necessary?

It can be concluded that moderate austerity is necessary, when the economy can afford it, to avoid a Greek-style debt crisis and instil confidence in the economy, whilst reducing the deficit for the future.

Is austerity a bad thing?

Further, the Great Recession of 2008 demonstrated that if austerity measures (cuts to government spending) are adopted too soon, the recovery will be delayed for years, contributing to deterioration of our human capital, resiliency, and small business viability, which will result in long-term damage to our economy and ...