Austerity means something that is austere, severe, rude. Austerity is a severity of customs, of life, it can also be a kind of penance, rigor and discipline.
In the context of the economy, austerity means having greater rigor in controlling expenses, it is part of a plan or a policy, when a country has a high deficit and is no longer able to to sustain. The austerity plan takes place by cutting unnecessary and/or superfluous expenses.
Austerity policy is a requirement of the International Monetary Fund (IMF), when a country that has debts with the Fund, intend to refinance them. The institution demands the reduction of public spending, so that they can pay their debts. This economic policy is strict and restrictive, as it limits private and public consumption.
Austerity plans have already been used by several countries, especially with the crisis in Europe, countries such as Greece, Italy and Portugal, which joined the austerity program to control their spending.
Austerity can also be a characteristic of a person, in which case it describes a person who is strict, harsh, severe and inflexible.
Ex: He had a very complicated childhood, because his father was an austere person.