Austerity has yet to come to Greece

Austerity came from the recession, not the other way around. The recession started in mid-2008 and worsened in 2009. Yet government spending rose in both 2008 and 2009. In fact, the recession started during the largest expansion of the state since the 1980s and at a time when government primary spending, or spending excluding interest payments, as a share of GDP was at a historic high. The problem was that despite this stimulus, Greece was not only in a recession but also had a budget deficit that it could no longer finance. That is when austerity started.

From 2009–2011, Greece cut its primary deficit by an impressive €20 billion (down 17 percent). But when you put this number in context, it looks a lot less impressive. Spending had risen by €28 billion in 2006–2009, so after two years of “austerity,” primary government spending as a share of GDP was still higher than in 2007, when the party had just gotten started. …

The idea that austerity is killing Greece is thus absurd. The problem is the inability to practice austerity. Greece has slashed public investment, bought fewer weapons, let civil servants retire without replacing them and raised taxes that have pushed revenues to historical highs. It has done all this to avoid antagonizing the consistencies that benefit from public largesse and to avoid reining in a chaotic public sector. Output is collapsing, people are out of work, prices are rising and wealth is evaporating so that the state can keep eating—in fact, eating better than the carefree years of the early and mid-2000s. Austerity has yet to come to Greece.

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