Greece is a very good example of the damage of austerity can do to both economies and the social fabric of a country. Firstly Greek austerity is almost unprecedented in its scope and intensity.
Greece government spending and revenue
Greek government spending was cut from €120 bn in 2008 to €90 bn in 2014.
To put that into context – the UK years of ‘austerity’ have seen government spending rise from to £522bn in 2007/08 to £722 bn in 2013/14 (UK government spending)
To cut government spending by 25% in nominal terms is quite rare. In addition, the Greek economy was also saddled with other difficulties which have contributed to lower economic growth.
- Due to higher inflation rates, Greece experienced a decline in competitiveness . Because it was in the Euro it couldn’t devalue and this led to a large current account deficit – lower exports and reduced domestic demand.
- No control over monetary policy. The ECB increased interest rates in 2011, and have, until very recently, rejected any form of quantitative easing to help boost domestic demand in southern Europe.
Cost of Austerity
The cost of this austerity has been enormous in terms of economics, social and political upheaval.