In 2014, the primary budget balance adjusted for the business cycle has represented more than 5% of the potential GDP. It’s more than any other western country. They did better than in Germany, Spain Italy or France. In the U.S. this measure was negative by -2.3%, in the United Kingdom by 2.4% and in Japan it was -6.6%.
In other words, austerity was the norm for Greece in 2014, more than elsewhere. To get that surplus they have to cut non interest expenditures and to increase taxes.
Sources: Krugman, IMF Fiscal Monitor 2015
The second graph compares non interest expenditures from government. The reduction in Greece has been much more important than in Spain. It’s another way to measure austerity.
Austerity has been the norm in Greece, more than in any country of the Euro Area. How is it possible to define new and restrictive fiscal targets when non interest expenditures have been reduced by 20% in 7 years: that’s an important issue of the negotiation.
The question associated with this issue is the following: how a recovery can be expected in these conditions? Austerity implies lower demand, lowering economic activity. It’s impossible to imagine that after a five-year recession (income per capita dropped dramatically) and an unemployment rate above 25%, a recovery could come from the private sector and able to compensate austerity.
Asking Greek people to support more austerity is not realistic as GDP will continue to fall and the convergence to fiscal targets will be impossible. In that case the stone in the Eurozone shoe is here to stay and to grow.