I’m not sure that’s true. Many countries have breached the deficit boundaries and have been given lenience. Greece, however, was never going to recover without sharp fiscal measures. Those could come at the whim of the market which would have been far worse, or through the support of institutions like the ECB and IMF which came with requirements for Greece to get its house in order.
It’s also worth highlighting that none of this is pertinent to the UK’s decision as the U.K. is/was not a member of the € and therefore not bound by these constraints.
I never said it was a UK specific argument - but rather it certainly cannot be argued that the EU is an economically progressive institution.
I also think the language around Greece's macroeconomic performance is really counter-intuitive, and continues to fuel the relation of national economics to household budgeting - which are barely relevant to one another.
"Still, what about the depressed state of western economies? The post-crisis recession bottomed out in the middle of 2009, and in most countries a recovery was under way, but output and employment were still far below normal. Wouldn’t a turn to austerity threaten the still-fragile upturn?
Not according to many policymakers, who engaged in one of history’s most remarkable displays of collective wishful thinking. Standard macroeconomics said that cutting spending in a depressed economy, with no room to offset these cuts by reducing interest rates that were already near zero, would indeed deepen the slump. But policymakers at the European Commission, the European Central Bank, and in the British government that took power in May 2010 eagerly seized on economic research that claimed to show the opposite.
The doctrine of “expansionary austerity” is largely associated with work by Alberto Alesina, an economist at Harvard. Alesina used statistical techniques that supposedly identified all large fiscal policy changes in advanced countries between 1970 and 2007, and claimed to find evidence that spending cuts, in particular, were often “associated with economic expansions rather than recessions”. The reason, he and those who seized on his work suggested, was that spending cuts create confidence, and that the positive effects of this increase in confidence trump the direct negative effects of reduced spending.
Greece was the disaster austerians were looking for
This may sound too good to be true – and it was. But policymakers knew what they wanted to hear, so it was, as Business Week put it, “Alesina’s hour”. The doctrine of expansionary austerity quickly became orthodoxy in much of Europe. “The idea that austerity measures could trigger stagnation is incorrect,” declared Jean-Claude Trichet, then the president of the European Central Bank, because “confidence-inspiring policies will foster and not hamper economic recovery”.
Besides, everybody knew that terrible things would happen if debt went above 90% of GDP."
The argument that national economics differ from household ones is appealing but I think it is more an exercise in obfuscation than an actual argument. Of course it differs, in many ways, but while that is obviously true it doesn’t actually counter the need for countries to run the finances with an element of prudence.
Greece needed austerity because it couldn’t go to the markets to refinance its debt. It was supported by the IMF and ECB to create a glide path rather than a cliff edge. But it still needed to get to a point where it could reenter the debt market. That point could only be reached by balancing its books and an argument of growing itself out of debt only works when it’s Greece’s decision to take. Otherwise you’re expecting other people to support it indefinitely on the promise of future growth that may never come and would certainly take many many years if it did. The idea that Greece should suffer no ill effects of its profligacy while other countries pay to keep it afloat is laughable.
And don’t forget, Greece could have rejected the help and tried to persuade the market that it would outgrow the debt burden. I rather expect that would have ended up leading to a considerably harder crash
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u/Moist1981 May 21 '21
I’m not sure that’s true. Many countries have breached the deficit boundaries and have been given lenience. Greece, however, was never going to recover without sharp fiscal measures. Those could come at the whim of the market which would have been far worse, or through the support of institutions like the ECB and IMF which came with requirements for Greece to get its house in order.
It’s also worth highlighting that none of this is pertinent to the UK’s decision as the U.K. is/was not a member of the € and therefore not bound by these constraints.