Austerity Measures of European Governments Essay - 1

Austerity Measures of European Governments - Essay Example As a result, it caused several problems which it was intended to resolve. With political motivations, governments of the Euro zone have developed austerity measures to demonstrate their discipline to their creditors and credit rating agencies. The governments essentially targeted government spending to reduce their budget deficits because they were directly affected by the sovereign debt crisis which made their budget deficits relative to GDP to soar significantly (Traynor and Katie Allen 2010). Therefore, the austerity measures were focused on the government, although it had significant effects on all sectors of the economy in the affected countries. Increase of taxes as part of the austerity measures is also intended for the citizens, businesses and companies of those countries. In this case, the people and businesses in the country were made to pay for the government deficit. This increased the problems of the Euro zone rather than reducing or solving them. In 2010-2011 when the a usterity measures were used, all European countries except Germany experienced an increased in public debt to GDP ratio. For instance, the public debt of Greece increased from 143% in 2010 to 165% in 2011 (Eurostat 2013). This indicates that as the budget deficits declined, the GDP growth was not sufficient to support the rising ratio of debt-to- GDP. The reason why austerity measures failed in the Euro zone is because the problems of sovereign debt crisis after the 2008 financial crisis were not caused by policy choices. Following the 2008 crisis, private sector retrenchment occurred and capital account surpluses increased. However, the austerity measures did not target these sectors. Instead, it aimed at the government; hence becoming counterproductive (Blyth 2013).