Wednesday, February 11, 2015

Opinion: Did Germany Fulfill their Promises? Did Austerity in Greece Deliver?

by Bill McBride on 2/11/2015 10:35:00 AM

Back in 2010, Greece agreed to a number of austerity measures. In general, Greece met their obligations and is currently running a primary surplus.

Greece was told by the IMF, the Germans, and other that this would turn the Greek economy around. Greece clearly needed some austerity, however many of us argued austerity alone would be a disaster for Greece, and for Europe in general.

Below are the forecasts for Greece (IMF) and the actual results (Eurostat).

Clearly austerity alone failed. Sadly European officials like German Finance minister Wolfgang Schauble have not changed their views and apologized to the Greeks.

Here is an actual quote from Schauble in 2013:

"Nobody in Europe sees this contradiction between fiscal policy consolidation and growth,” Schauble said. “We have a growth-friendly process of consolidation, and we have sustainable growth, however you want to word it.”
A "growth friendly process"? "Sustainable growth"? Nonsense.

Obviously there is a contradiction between "fiscal policy consolidation and growth". And not everyone is blind to the obvious - some people in Europe see the obvious contradiction (just look at the data for Europe as a whole and Greece in particular).

It is time to stop blaming Greece (they mostly did what they were told), and start blaming the Germans and others for pushing the wrong policies.  And give Greece a little relief.

Greece: Annual GDP, Forecast and Actual1
YearPromisedActual
2009-2-4.4
2010-4-5.4
2011-2.6-8.9
20121.1-6.6
20132.1-3.9
20142.1 
20152.7 
1IMF Forecasts and Eurostat Actual

Greece: Annual Unemployment Rate,
Forecast and Actual1
YearPromisedActual
20099.49.6
201011.812.7
201114.617.9
201214.824.5
201314.327.5
201414.126.82
201513.4 
1IMF Forecasts and Eurostat Actual
22014 is Q1, Q2, Q3 average