The Rationale For Austerity Programmes On Sovereign Debt And Discuss How Far These Have Been Successful
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“Explain the rationale for austerity programmes to reduce sovereign debt and discuss how far these have been successful.”
Government debt is nothing new, all countries have some amount of debt, its only when the government can’t pay the interest, it turns into deficit and create crisis. This essay is going show what are government debts, main cause of them and how can it can be reduced. Its also reflects on how some countries fared during similar situations.
Definition of government Debt
What a government borrows to ensure it can finance all its planned expenditure (and plug its budget deficits). If a government is running a budget surplus, it should not in principle need to increase its debt. A government will normally borrow by issuing bonds and other securities. (Ft. 2015)
“GDP is the most important concept of national income is Gross Domestic Product. Gross domestic product is the money value of all final goods and services produced within the domestic territory of a country during a year.” (Thapa.R)
C+I+G+(X-M) = GDP
C is consumption
I is Investment
G is Government
(X-M) is export minus import.
Government is important factor for how well the economy does, because government creates laws and policies which should be followed by all, then these polices result to good/ bad of the economy. Such as unemployment, inflations, rate of the economic growth and the balance of payment.
Many countries in the Europe are in budget deficit, which only happens when the government spending is greater than their revenues. This over time has accumulated more and more debt. If the government are not able to pay back this may lead to default.
Main causes of government debt
1. High structural debt befo...
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.... Like USA can print their own dollar bills and Britain has huge control over their interest rates while many other countries don’t enjoy that freedom.
Countries with sovereign debt can successfully get out of deficit and escape default, but these all cannot be specified with one formula nor does it have one answer, it’s a combination of many factors such as the current financial environment, since we part of a global village each and every country place a big part on current and future economic situation of the country. Sovereign debt can be avoided by constant evaluations and reforms in economic laws and policies. Government plays a key role in these economics situation but I also believe financial institution and business play an important role as well. The deficits can be avoided but many factors go into making the economics growth sustainable.