How Much Austerity Has Europe Actually Endured?
As euro zone leaders wait for details on Greece’s last-chance proposal for a new bailout deal, several have taken a hard line toward Syriza’s claim that austerity measures, as they stand, are unacceptable to the Greek people. Those feelings have been simmering for months. After all, people in Ireland, Portugal, Spain, and Italy have all dealt with harsh austerity measures implemented following debt crises. If these countries had to swallow the bitter pill of austerity, the argument goes, so should Greece.
But are the situations comparable? How much austerity have these countries endured, exactly? Budgetary austerity is roughly defined as any combination of spending cuts and tax increases, usually during an economic downturn. The broadest way to quantify such policies is to look at the change over time in a country’s structural deficit. While a government’s total deficit is simply the difference between its revenue and expenditures, it can change over time because of cyclical factors beyond its control. Imagine a country with a balanced budget that suddenly suffers an economic downturn due to some outside shock. Incomes will fall, which will depress the amount of taxes the government collects. This pushes the balanced budget into deficit, since the government is still spending as much as before. But the structural deficit is still zero, since the government hasn’t made any fundamental changes to its tax-and-spend policies.
Measuring the change in a country’s structural balance shows how committed that country is to balancing its books. So do the other peripheral euro zone nations have a case when they say Greece should endure the same austerity they did? As the chart below shows, Greece has undergone austerity far beyond what its counterparts have. In 2009, Greece’s structural deficit was 18 percent of gross domestic product. Spending cuts and tax hikes have resulted in a 2 percent-of-GDP surplus, a 20 percentage-point swing. Ireland has dealt with just a 9-point increase over the same period, with Spain and Portugal each enduring 7-point swings. (The U.K. and the U.S. have dealt with 6- and 4-point swings, respectively.)
To be fair, Greece’s structural deficit was the biggest to begin with. Its tax-and-spend policies were the least sustainable, so would naturally require the biggest adjustment. But when other countries claim they’ve had to endure austerity like Greece, it isn’t quite true.
That’s not to say life has been easy in the rest of the euro zone these past few years. A quick look at GDP shows that Spain, Portugal, and Italy remain poorer than they were in 2008. Still, Greece’s economy has shrunk by a staggering 23.6 percent. (The U.S. lost 30 percent from peak to trough during the Great Depression.)
But if the peripheral euro zone’s pain isn’t quite as severe as Greece’s, it’s understandable why it might feel that way. Unemployment in most countries peaked at more than double pre-austerity levels. Spain’s jobless rate even exceeded Greece’s until 2013 and has nearly matched it since then:
If a quarter of your population is still searching for work after austerity implementation, it’s easy to see how solidarity for Greek debt forgiveness might be a difficult sell.
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