Austerity Measures Are the Proper Response to a Debt Crisis

I. Austerity Measures can help bring a country out of debt. This is common knowledge. If a government is spending more than it is taking in, it is losing money. In order to help pay off debts, the Government must cut enough things so that it is making a surplus. A government must use this surplus to pay off the debt. II. Austerity Measures are therefore important. Here is what could happen. If you do not pay off your debt, first, your credit rating will be lowered. This will raise the interest rate whenever you borrow something. You do need to borrow resources sometimes. You cannot produce everything. And plus, if the interest rate on international loans is higher, then that is less money flowing in the economy since more money is being devoted to paying the interest. Second, you could go into default. This would be catastrophic. If a country goes into default, then almost nobody will lend you money and the few that do will charge exorbitant interest rates. Also, for the countris to receive the bailout it needs, it needs to implement these austerity measures to get the bailout. "Implementing these so-called "prior actions" is key for Greece to secure a second, 130 billion euro ($172 billion) bailout, without which it would be forced into a disorderly default on its debts by the end of March."[1] If Greece does not accept the measures, there will be no bailout and a default will be likely soon (but as events have shown, Greece has passed it). III. Will Austerity Measures hurt the economy? Yes. With the C+I+G+X=GDP equation, using austerity measures, the G (which is Government spending) will be lowered. But with the side effects of a lower credit rating and especially of default, the C and especially the I and X will be lowered since both I and X require a major international presence (especially X). So in truth, austerity measures do not bring back the economy to its all-time peak. But it will help significantly when used in a country experiencing a debt crisis. Keeping austerity measures in place is important "to provide the stability that the British economy needs and the low interest rates the British economy needs to allow the recovery to take hold."[2] In a region that needs to recover from a massive recession, austerity measures will provide the economies with the low interest rates it needs to do so. IV. But don't they decrease the standard of living? Again, the short answer is yes. But this is only for the short term. By implementing austerity measures, the country will be able to get out of a recession and per capita GDP will rise. This will raise living standards. Also, like I stated earlier, if the country does not accept the measures, they will be forced into default, and the living standards will be ten times worse. Also, if they accept the mesures, the living standards will rise eventually if the country can get out of debt because once out of debt, the country can help is people some more without immediate consequences. Sorry about my short argument. I have had no time. I finished this in the two hours before my argument was due. I hope to have a better argument next time. Sources: [1]:http://www.cbsnews.com... [2]:http://nobodylikesatory.wordpress.com...