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How does austerity (reducing government expenditures in order to control/safeguard public-sector debt) cause the end of a recession (shift from negative to posi

How does austerity (reducing government expenditures in order to control/safeguard public-sector debt) cause the end of a recession (shift from negative to positive GDP growth rate)? Saying austerity led to the end of a recession is like saying that cutting costs at your restaurant led to an increase in customers, or allowed you to charge higher prices for your food. Greece and Italy are fighting austerity because they take the traditional economic stance - government needs to spend tax dollars on increasing investment, education, employment, etc. instead of cutting investment costs and ensuring tax money is channeled to interest payments. Perhaps foreign investors saw that Portugal was taking its austerity seriously and began to increase investment, reassured their money would be relatively safe. But how could austerity lead to the boom in tourism and exports cited in the NY Times article?

eecc 8y ago
Perhaps austerity destroyed internal spending power (as Mario Monti put it when interviewed about his government on US media) and this made the country more competitive and cheaper to external consumers?
geezerjay 8y ago
> How does austerity (reducing government expenditures in order to control/safeguard public-sector debt) cause the end of a recession (shift from negative to positive GDP growth rate)? One of the key factors was that the national trade balance became net positive during the period, as the private sector was pushed to invest in exports, but I'm sure the issue is much more complex and can't be pinned down to a single cause. Nevertheless the undisutable fact is that the recession that started in 2008 and caused the then acting government to nearly bankrupt the state in 2011 with their record public spending push, piling yearly deficits of over 10%, ended in 2014 during the third year of the bailout program. That fact is somehow ignored by anti-austerity critics who insist that no recovery is possible when reality shows otherwise.

eecc 8y ago

Perhaps austerity destroyed internal spending power (as Mario Monti put it when interviewed about his government on US media) and this made the country more competitive and cheaper to external consumers?

geezerjay 8y ago

> How does austerity (reducing government expenditures in order to control/safeguard public-sector debt) cause the end of a recession (shift from negative to positive GDP growth rate)? One of the key factors was that the national trade balance became net positive during the period, as the private sector was pushed to invest in exports, but I'm sure the issue is much more complex and can't be pinned down to a single cause. Nevertheless the undisutable fact is that the recession that started in 2008 and caused the then acting government to nearly bankrupt the state in 2011 with their record public spending push, piling yearly deficits of over 10%, ended in 2014 during the third year of the bailout program. That fact is somehow ignored by anti-austerity critics who insist that no recovery is possible when reality shows otherwise.