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‘The age of austerity’-take it or leave it?

Nowadays, the moment we open any newspaper there is only one news-article which encounters us early in the morning, and that refers to the numerous ‘austerity measures’ implemented by so and so country.

It all started with Greece but slowly spread like a wild fire not only in the eurozone countries but across the world. Currently, there is hardly any country which has remained immune from this word – ‘austerity’.

As reported by Associated Press, the leaders of the 27 countries that make up the European Union are to meet in Brussels on Wednesday to try and find a way to keep the debt crisis in Europe from spiraling out of control and promote jobs and growth.

For the people of Europe, austerity meant layoffs and pay cuts for state workers, scaled-back spending on welfare and social programs, and higher taxes and fees to  boost government revenue.In many cases, austerity measures have been associated with protest movements claiming significant decline in the standard of living.

A case in point is the nation of Greece. From this perspective, one would agree that currently there is a lot of negative connotation attached with the word – ‘austerity’. But are we fair to paint this word so negative altogether? Therefore, let us make by ourselves an informed decision on this issue judiciously.

In economics, “austerity” refers to a policy of deficitcutting by lowering spending often via a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to try toreduce their deficit spending and are sometimes coupled with increases in taxes to demonstrate long-term fiscal solvency to creditors.

Austerity measures are typically taken if there is a threat that a government cannot honor its debt liabilities. Such a situation may arise if a government has borrowed in foreign currencies that they have no right to issue or they have been legally forbidden from issuing theirown currency.

In such a situation, banks may lose trust in a government’s ability and/ or willingness to pay and either refuses to roll over the existing debts or demand extremely high interest rates. In such situations, intergovernmental institutions such as the International Monetary Fund (IMF) may demand ‘austerity measures’ in exchange for functioning as a “lender of last resort”.

I hope from the above explanation one can easily correlate the need for adopting austerity measures in one’s day-to-day lifestyle. Through so many of my past articles, I have always advocated to keep one’s monthly expenses lower than one’s monthly income.

This is the only way to generate some surplus, which ultimately would get transformed into one’s savings or investments.The moment you deviate from this simple principle of prudence, one dreadful financial transaction called ‘debt’ enters into your life.

Why I call it “dreadful” is because it starts showing its colour the moment we default on its repayment. Any lender would make a borrower’s life miserable. There are numerous examples in this cruel world when things have gone to such an unbearable level that one preferred to end his/her life than face that dreadful lender, whosoever it may be.

If we start practicing “austerity” in our daily life [irrespective of fact, whether the time is good or bad for someone], this would sincerely ensure that we would never fell into any sort of a debt-trap.

Thus, there is an urgent need on our part to take immediate austerity measures to stop petty leakages of our money - this is what my last week’s published article impressed upon.

The term “Age of austerity” was popularized by British Conservative leader David Cameron [the current Prime Minister] in his keynote speech to the Conservative party forum in Cheltenham on April 26, 2009, when he committed to put an end to what he called years of excessive government spending.

Merriam-Webster’s Dictionary named the word “austerity” as its “Word of the Year” for 2010 because of the number of web searches this word generated that year. According to the president and publisher of the dictionary, “austerity had more than 250,000 searches on the dictionary’s free online [website] tool” and the spike in searches “came with more coverage of the debt crisis”.

So love me or hate me, but you can’t avoid me – this is what ‘austerity’ says to all of us. Thus let us adopt it and make ‘austerity’ as one of our development partners. In that case it will no more remain as a bitter pill to swallow. Cheers!!!

Jagjit Singh is a Technical Adviser, Unit Trust of Tanzania, jsingh@utt-tz.org

Author: Jagjit Singh

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