The Austerity Debate

The austerity debate has been raging since 2010, when most advanced economies initiated a process of fiscal adjustment following the surge in fiscal deficits in 2008–2009. It is a complex, confused and ideological debate and this paper aims at bringing some clarity regarding the position taken by various commentators. It reviews the “fiscal hawk view”, which favors an aggressive/frontloaded reduction in the deficit; the “fiscal dove view”, which favors a postponement of the adjustment or even a fiscal expansion, at least in some countries; and the intermediate position of those who argue that some adjustment is needed, but at a steady even pace, without frontloading, except in countries facing pressures from markets (and even in this case, there would be a speed limit to fiscal adjustment). This intermediate position is the one that is deemed most appropriate in the current circumstances.