by Stuart Rodger
The world is transfixed by the Greek Tragedy unfolding before our eyes. It is increasingly clear for those on the left that what is being foisted upon the Greek people by the IMF, EU, and ECB as we speak is nothing less than a form of economic ‘shock therapy’: the labour markets must be ‘liberalised’, large public assets are to be sold off (at rock bottom prices), and banks are to be re-capitalised but maintain their “managerial independence”.
The Golden Dawn – Greece’s equivalent of the BNP – is on the verge of winning representation. In a recent Newsnight report, one unemployed, professional Greek citizen spoke of “civil war”. The place where democracy was born is turning out to be the place where democracy goes to die.
But far from being an irrelevant calamity at the other end of Europe, the economic crisis unfolding may have some important lessons for us – David Cameron et al, after all, routinely bring up the examples of Portugal, Ireland, and Greece as warning signals for what could happen to Britain should it not cut its way out of its deficit, with the price of debt spiralling up and growth stalling.
But a cursory reading of the news made me wonder if austerity is in fact exacerbating their problems, and is in fact the root cause of their problems in the first place.
So I decided to dig into the statistics to see if my theory was true. So, is David Cameron’s government PIG-ignorant? (see what I did there?). The following fiscal and growth statistics are all from the Eurostat and World Bank websites respectively, unless otherwise stated (measures of inflation have also been taken from the World Bank).
P is for Portugal. This country is important because it has been held up by David Cameron as his response to the Labour Party’s proposals to halve the deficit over the course of this parliament, rather than try to eliminate it entirely.
What policy did they follow? Initially, they increased spending moderately and the result was a moderate recovery. But in May 2011 they announced cuts to public spending and then, six months later, Portugal was reduced to “junk” status, with Eurostat estimating moderate contraction in 2011.
The lesson from Portugal is that spending brought recovery, and cuts promptly killed it off, worsening their debt problems. Crucially – punishment by the bond-markets came post-austerity. By citing Portugal, Cameron cites an economic experiment which proves him wrong.
