Austerity - Controversy

Controversy

Austerity programs can be controversial. In the Overseas Development Institute briefing paper "The IMF and the Third World" the ODI addresses five major complaints against the IMF's austerity 'conditionalities'. These complaints include these measures being "anti-developmental", "self-defeating", and "they tend to have an adverse impact on the poorest segments of the population". In many situations, austerity programs are implemented by countries that were previously under dictatorial regimes, leading to criticism that the citizens are forced to repay the debts of their oppressors.

Economist Richard D. Wolff has stated that instead of cutting government programs and raising taxes, austerity should be attained by collecting (taxes) from non-profit multinational corporations, churches, and private tax-exempt institutions such as universities, which currently pay no taxes at all.

In 2009, 2010, and 2011, workers and students in Greece and other European countries demonstrated against cuts to pensions, public services and education spending as a result of government austerity measures. Following the announcement of plans to introduce austerity measures in Greece, massive demonstrations were witnessed throughout the country, aimed at pressing parliamentarians to vote against the austerity package. In Athens alone 19 arrests were made while 46 civilians and 38 policemen had been injured by 29 June 2011. The third round austerity has been approved by the Greece parliament on 12 February 2012 and has met strong opposition especially in the cities of Athens and Thessaloniki where police clashed with demonstrators.

Opponents argue that austerity measures depress economic growth, and ultimately cause reduced tax revenues that outweigh the benefits of reduced public spending. This is especially the case when austerity measures affect the private sector and do not merely correct unreasonable expenditures on the public sector workforce. The case of Greece significantly corroborates these views. Moreover, in countries with already anemic economic growth, austerity can engender deflation which inflates existing debt. Such austerity packages can also cause the country to fall into a liquidity trap, causing credit markets to freeze up and unemployment to increase. Opponents point to cases in Ireland and Spain in which austerity measures instituted in response to financial crises in 2009 proved ineffective in combating public debt, and placing those countries at risk of defaulting in late 2010.