Public austerity, under different names, has commonly been extolled as a prudent fiscal policy that remediates alleged past excesses of governments.

Austerity essentially means attempting to run a financial surplus.

Thus private austerity means saving more than usual and repaying debt. Austere businesses repay debt, and save, just as households do.

Under conditions of global private austerity, banks find it extremely difficult to lend the money that flows into their coffers from savers and debt-repayers.

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Austerity, as a public policy, can only be a successful route out of economic crisis in the event of the willing unausterity of others.

Thus many governments today look to spending in China, India, Southeast Asia, South America and Australia to balance their austerity policies.

They seek export-led growth. When Southeast Asian nations had their crises in 1998, it was spending in the West that facilitated the success of their austerity programmes.

In an extended crisis, the risk is that everyone wants to be austere at the same time. The major event in the post-2008 economy is worldwide private-sector austerity.

In a global economy with just two sectors - private and public - an austere private sector can only succeed in its debt-reduction aims if governments spend those private sector surpluses.

If, in the event of global private austerity, governments refuse to borrow sufficiently from households and firms (albeit through banks), then an economic depression is ensured. That's what happened in the early 1930s.

It is impossible for both the private and public sectors to succeed simultaneously in being austere.

It is impossible for every sector on earth to spend less than it earns - to buy less than it sells.

Before the word austerity became fashionable in 2010 the euphemism of fiscal consolidation was used in many countries. Austerity is simply the word journalists came to prefer.

Pointedly, we have not adopted the language of policy-making in the Great Depression era. In New Zealand in the early 1930s, the natural inclination of the then conservative governments was retrenchment. It meant exactly the same thing as austerity does today. In 1931, the New Zealand Labour Party offered little more than its own version of retrenchment.

The 1929-31 British Labour government also was fiscally conservative. In Australia, the federal Labor government in 1930-31, and the New South Wales government that lasted a little longer, were proponents of public stimulus. But both were unable to stay in office, given the conservative - indeed fearful - sentiment of too many voters, most of whom were not unemployed.

Recovery came about in all three countries when pragmatic centre-right governments quietly abandoned retrenchment policies.

In New Zealand a popular Labour government, from 1935, was able to build on and extend its predecessor's policy through fiscal and monetary stimulus.

The present-day austerity programmes in Greece, Spain, Ireland and Portugal can work. But only if Germany and the other European economies with current account surpluses actively pursue its opposite, stimulus. At present, the austerity in Europe's south is being defeated by the austerity of Europe's north.

In the absence of a shift to fiscal pragmatism, Europe is destined for a substantial economic depression and a return to 1930s' style political extremism.

Keith Rankin is a lecturer in the department of accounting and finance at Unitec.