Austerity policies not only hurt individuals, they are detrimental to business and public confidence as well.
Contrary to Alesina and Ardagna’s claim that austerity policy would increase confidence in the private sector, between 2008 and 2012, the business investment rate fell from above 20% to 19.7% in the Euro area. Not only does austerity policy inflict financial hardship on people experiencing disadvantage, but it seems to impede businesses as well.
Between 2010 and 2011, when austerity policy was well underway in its effort to reduce debt and ameliorate economies in Europe, the percentage of business insolvencies (companies unable to meet their financial obligations) increased. In the UK this percentage rose by 6,3%, and in Greece by 27.6%. This actually occurred after the global financial crisis, which means that much of the increase can be linked to austerity policies.
The Euro area growth rate for GDP reached 1% in 2010 but has remained roughly above or below zero between 2011 and 2013. Therefore, the GDP growth rate can be seen to be in or near a state of stagnation during the years in which austerity was the core policy.
This does not inspire hope or confidence that austerity is the best possible policy for leading debtor nations out of deficit. The performance of austerity is poor.
Another consequence in reducing public spending is that it has led to a reduction in capital spending. In fact, the global volume of project finance lending fell from $159 billion in 2011 to $99 billion in 2012. What these figures who is the negative impact that austerity measures have on business.
Austerity policies are bad for business, both directly and indirectly. No-one benefits from austerity.