why debtors like the IMF or the EU demand austerity measures when austerity may cause economic downturns like Greece?
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There aren’t any good alternatives in a complex situation like that.
Put it simply, whether the situation is one where they could control, the government is held accountable for the situation where they require emergency funding. Most countries that find themselves in this situation have governments that are spending much more than they are receiving in taxes, their economy isn’t generating sufficient positive trade balance so that their central bank can keep printing money (not Greece’s situation since they cannot print Euros) and they are now incapable of avoiding a default on prior loans.
Lending them more money is rather pointless if there are no measures taken to correct the problem in the first place. All that would very likely happen is that the newly borrowed money is spent the same way that the earlier borrowed money went and the situation is back to the same problem.
There are no really good solutions, the country could just declare themselves in default and refuse to pay their outstanding debt. This might cause the existing lenders some problems. But it almost certainly means NO ONE ELSE would lend them any money. Given that the country got to this position by doing what they’re currently doing, it is then unclear how the economy survives. The government (if they controlled their currency) could just print more and more money but that very likely leads to hyperinflation and fairly rapid economic collapse. This is almost always worse than austerity measures. It would also lead to capital flight, possibly human migration, and many other social problems.
From a political standpoint, IMF “demanded” austerity measures are a useful scapegoat. Local politicians have someone external to blame for their mismanagement which might buy them some time to clean up the mess they created.
Ask yourself this, how many courageous politicians (in Greece perhaps) have straight up said – “we hired too many civil servants”, “we cannot collect taxes”, “we have overgenerous welfare packages that the local economy cannot afford to fund”, “we have terrible productivity and underinvested in infrastructure” or “our society cannot produce enough to support our lifestyle”. And yet, these are exactly the things that caused the situation.
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