Does Austerity even work in Greece? - January 11, 2011

January 11, 2012

Does austerity even work?

Washington Post article by Anthony Faiola asks the obvious question: is austerity even working? Many economists and pundits have been suggesting since May 2010 (when the bailout out treaty was negotiated) that Greece is paying too heavy a price for so little of a result (staying on the euro).

Washington Post article:

"Greece has been forced to cut spending and raise taxes in the middle of a severe downturn, slashing pensions as well as state salaries, jobs and services. As public confidence has evaporated, consumer spending — the biggest driver of the economy — has plunged, generating cascading losses at private firms. The result is a dizzying economic plummet and social crisis that is bringing the cradle of Western civilization to its knees."

€47.1 billion has been delivered to Greece thus far from the May 2010 loan treaty. There is an estimated total of €360 billion in Greek public debt. There are ongoing efforts to negotiate a 'haircut' reduction on debts with private lenders with a goal of eliminating €160 billion altogether.

March 2012: make or break

But the biggest challenge is now coming in March 2012: nearly €30 billion is due on maturing debt, and without another tranche payment at that time from the overall bail-out treaty, Greece will be forced off the euro and into national bankruptcy.