Greece will have to go through austerity measures to stay in the Eurozone. Historically what other countries have gone through austerity measures? I read that Romania was made poor because Ceausescu wanted to pay off the national debt. Is that the same?
Peru. Massive public sector layoffs (also early retirements, bought-off resignations), 300% inflation in one day, 1000% gas prices.
Also, the SUNAT (Peru’s IRS) toughened up to leviathanical evasion.
It worked.
Certainly not ours (yet).
Here’s a list. Lots of countries have been enacting serious austerity measures over the last few years, and in almost every case it’s been counterproductive, damaging growth, depressing tax revenues and thus failing to rectify the budget pictures. The current coalition government in the UK, led by David Cameron’s Conservatives, enacted significant austerity measures in mid-2010, which were scheduled to bring the UK’s budget deficit down to zero by 2015. Since then growth in the UK has stalled, the country has probably just dipped back into technical recession as of this quarter, and the depressed growth means that Britain’s finance minister recently announced the deficit will now not be eliminated until 2017 at the earliest.
Spain, Portugal and Ireland have all enacted swingeing spending cuts and tax increases, and in all three cases it has damaged growth and employment and failed to rectify the deficit situation. (The same is guaranteed to happen to Greece - no economist is really questioning that at this point with regard to Greece).
David Cameron based his plans for austerity on the Swedish and Canadian austerity programs of the early 1990s. Those programs were supposedly successful, although I don’t know much about them.
That’s what really amazes me about this Greece bailout business. The European Union presumably has access to some of the world’s top economists, and yet none of them seems to have realized that all those draconian austerity measures are probably going to send Greece’s economy into a severe recession (on top of the recession they’re already in) thus ensuring that Greece’s tax revenues will plummet, so they still won’t have the money to pay their debts in the future.
As far as Greece goes, they have realized it. There was a document circulated to EU officials yesterday presented by a number of economists which says that, even in the best case scenario, Greece will still be unable to pay back its debts and that the austerity measures are only making things much worse. The problem as far as Greece goes is politics - Germans are not willing to transfer bailout money to Greeks with no strings attached, but it would be a disaster for both if Greece defaulted and collapsed out of the Eurozone. So for political reasons it has to look like Greece is giving something back.
But as far as those other countries go, particularly the UK, they’ve just been kidding themselves about the expansionary potential of austerity.
It’s difficult to say whether austerity measures have stalled growth in Spain: Spanish growth had been linked waaaaaay too much to construction jobs; when the construction bubble burst, a lot of our economy did.
It’s a great moment to do work in your house: three years ago it was impossible to hire a tradesman as they all had more work they could do, now they’re happy to come paint three rooms. But of course, half of them won’t deal except under the table :rolleyes:. So much of our economy is “submerged”, I’m not sure whether we have a country or a submarine.
Did you miss the next line of that post which said
No, I didn’t. I was commenting on the fact that the original thesis was based on undue optimism. And I’m not so sure about 2017 either.
That said, if the government does things right, there should be a huge economic boost this year. We have the Olympics, the Queen’s Jubilee, the 30th Anniversary of the Falklands War, and the 200th anniversary of the War of 1812. All excellent excuses for morale-raising jamborees. I do not rate the chances of the government making full use of these very highly.
Yeah, Paul Martin was the best prime minister Canada ever had, when he was finance minister not prime minister. Basically he ran the finances of the federal government. He took Mulroney’s “the diet starts tomorrow” Conservative Party spending and actually cut it. Some cuts hurt; the transfers to rpovinces for things like health care were cut back, the provinces cut back so that “hallway medicine” is still a catch-phrase for bad management in much of Canada. Nurses were laid off, beds and wngs of hospitals were closed, and doctors complained and struck about low fee schedules. (Quite a few moved to the USA where they could earn much more). A number of departmets were scaled back or privatised. Interest rates bounced around, high to prevent serious inflation and keep up the value of the dollar, then low to stimulate growth.
The other thing that has saved Canada is our robust bank structure and the CMHC. The Canadian Mortgage and Housing Corp, a government arm, basically insures all residential mortgages. It enforced stricter rules than in the USA; and because mortgage interest is not tax deductible,most Canadians try to pay off their homes rather than continuously remortgaging them. We have 5 major banks, and they never got as heavily into the bizarre derivatives that wrecked much of the financial world, never came close to needing a bail-out.
But in the end, Paul Martin’s policies almost single-handedly brought the government deficit under control and ensured that we have pretty much the best economy in the world right now. However it was more about some belt-tightening than about massive economic shock. Nobody got 50% pay cuts or 50% layoffs.
And it didn’t work, devaluation and default did.