Where is this austerity that everyone keeps talking about?

I do not have a lot of  time to write these days so this means that it is more homework for you.  These days the euro zone is yet again tested by the markets in its commitment to the EURO. And as we are used to by now it the solution that envisages is more government spending as austerity has not worked.

Here is my question: where is this austerity that everyone keeps talking about?

The charts below show that public expenditures,public deficit and public debt increased since 2008 and remained above the level achieved before the economic crisis. Moreover, even hourly labor costs increased after 2008 albeit at a slower pace. It is true that government final consumption has slowed down after 2010 but not stopped and it remains above the 2010 level.

EU -17 Public  Expenditures (% of GDP)

EU-17 Government Final Consumption (current price)

EU -17 Public deficit (% of GDP)

EU-17 Public gross debt (% of GDP)

EU-17 Hourly Labor Costs (index 2008=100)


I know that my readers are smart people and they will catch me if I try to cut corners.To bring more details to the story here is the government expenditure as % of GDP for the PIIGS countries. I still do not see the austerity measures. The government expenditures increased for most of them above 50% (fifty) of GDP and than in the last year went down just below that level (except for Spain). Nevertheless, the current level of G as % of GDP is still above the 2000-2007 levels. Thus, we can talk about money badly spent, or saving certain sectors of the economy with public money, etc but we cannot talk about austerity yet.

Source: ECB, IMF


20 thoughts on “Where is this austerity that everyone keeps talking about?

  1. Eu asa ca nespecialist zic ca nu e loc de austeritate ca o sa le sara strada in cap de la un moment incolo.Poate ca Germania ar trebui sa iasa din zona euro si sa taie salariile cu 25% ca oricum se va aprecia marca.Nu prea vad alte popoare dispuse la austeritate,somaj,etc.Si nici nu prea e sanatos fara masuri de crestere economica.E ca si cum ai avea cancer si te-ai trata dor cu post negru .Sigur ai scapa de cancer prin deces.Asa ca aia bogati (Germania,Franta) sa mai dea si la saraci (Grecia,Spania,Romania ,etc) pt ca oricum in felul asta isi vor asigura o piata de desfacere tot mai mare si li se vor intoarce banii .Nu inteleg de ce Germania e asa grea de cap .Sau poate ca doar o parte din Germania.Cum naiba iti mai iei banii inapoi daca-i arunci pe greci sau pe altii in prapastie?Deci mai multi bani la cei slabi (cu control desigur ca sa mearga in crestere economica) si ceva austeritate in tarile mai bogate ca daca esti grasut suporti mai bine.Daca nu Europa=EURO+PA

    1. @edy
      Eu nu am zis ca trebuia austeritate, doar ca pana acum nu a fost asa ca trebuie sa fim atenti cu noul program de crestere care cu siguranta va creste cheltuielile si datoria publica.

  2. Well…it is there, but you have to put glasses on because the largest EU economy does not practice what it preaches to others.

    And maybe this will help as well: http://graphics8.nytimes.com/images/2012/05/17/opinion/051712krugman1/051712krugman1-blog480.jpg

    And the EU 27: http://fatasmihov.blogspot.com/2012/04/euro-and-us-coordinating-austerity.html

    So there is a lot of austeriry, but Germany, France, Austria and the other austerity preaching states do not practice it (maybe because they consider the moral side of the story more important than actual economics).

    1. @ddr
      But the graphs you show do not say that government spending has decreased, i.e austerity. They just show that the pace of government spending has slowed down relative to the peak of 2010.

      1. Well that’s the point. The austerity talk applies to Italy, Spain, Ireland and Greece. These countries have actually applied such measures, but the reduction in public spending from these countries is offset by large spending in countries like Germany or France. So if you do not see austerity in the eurozone as a whole, it’s because the economies with the largest share of GDP do not apply austerity measures.

      2. @DDR
        I added one more picture of government expenditures as % of GDP for the PIIGS countries. Same conclusion in my view, just money badly spent but not austerity .

      3. Well, I’m at work now procrastinating for a few minutes so let me try a quick answer: You are showing public expenditure as a % of GDP. So lower GDP, but with the same amount of expense will lead you to higher % of public expenditure.

        Just look at GDP growth:

      4. @DDR
        so, with a falling GDP still spending 50% of is called austerity? Take a look at government total expenditures for those countries and you will see that for all the current level of expenditures is above the one for 2007. With a peak in 2009 and 2010.
        I do not see a cut in expenditures by any measure so I ask again: is Europe suffering for austerity or from bad management of public money ?

      5. Government expenditure is a part of total GDP. If GDP goes down by 10%, and G expenses remain the same as a % of total GDP then you have a 10% decrease in G expenses compared to the previous year. Let’s not forget the fact that most of the expenses from 2009 and 2010 (peak years) are comming from automatic stabilizers (i.e. unemployment and social benefits). And if we are to talk about facts, let’s not forget Spain and Ireland who nationalised several banks in order to prevent a national financial meltdown (or so they claimed). So more money for the bank ment less expenditure on acquisition of goods and services from the Goverment.

      6. @ddr
        If expenditures fall with GDP that is not austerity.They should fall faster if we want to be specific.
        What you are saying is that governments substituted expenditure from goods and services to saving banks.So? Is that austerity?
        Austerity should show lower deficits, lower public debt and lower (in levels) government expenditures.Instead we see all these indicators higher.Some due to automatic stabilizers and some to higher government spending.

        My point is that the fiscal stimulus used so far has not worked.Now,those “guys” want more saying that Europe suffered from the austerity effects. Furthermore, the same “guys” are asking the monetary policy to accommodate those fiscal shocks. I call this blackmail. The waste of public money over the last three years is without precedent and to keep doing the same thing is just stupid.

      7. We probably have different things in mind when it comes to the meaning of the word austerity. If you have a salary of 2000 RON, and you spend 1000 RON each month your expenses represent 50% of what you produce in one month. If your salary is cut to 1000 RON per month and you reduce your expenses to 500 RON then, according to my definition you are appling austerity measures because you reduced expenses with 50% from 1000 to 500 RON on a month to month basis.

        However the expense to salary ratio is still 50% so according to your definition no austerity has taken place although expenses have been reduced by 50%.

      8. @DDR
        If that were true than we would not have an increase in public debt, for example. Also, the data for government expenditures for all the PIIGS do not show a cut in public expenditures relative to 2007. It may well be that in some countries governments cut public wages or cut the 16th or the 15th salary. But then it turned around and increased other government expenditures. For the economy as a whole is the entire fiscal policy impact that matters not just one decision.

        From the private side of the economy the austerity is not visible if we look at we , the private sector, have to support via our taxes in the future. Definitely more than we had to support in 2007. Bottom line, you may find specific examples of government spending cuts but overall governments have not been austere over the last 5 yrs.

  3. Vin acum si-ntreb, dupa ce am vazut si graficele dv si graficele din comentarii: sa fie oare o masura de austeritate scaderea masurii de crestere a cheltuielilor ori austeritatea a lipsit in toti acesti ani de Grecia, Spania, Italia au ajuns in prag de default? Oricum, daca nemtii renunta la euro, moneda unica europeana va fi o gaina fara cap care va duce la apreciarea DM, pentru ca euro a fost creat dupa chipul si asemanarea marcii.

  4. We can talk about austerity…but, anyway, it was not at the level it should have been from the very beginning because nobody accepted that there could ever be such a “worldly” economic crisis…and they still hope that things get better for euro…wrong choise in my opinion…i bet on USD this time…

  5. Cele doua curente preponderente sunt gresite.

    1. Austeritate! Da, deacord, elimini un deficit nesustenabil, doar ca in eliminarea deficitului scazi PIB’ul fapt ce genereaza o reducere de venituri si deci deficite proportional mai mari fata de punctul de plecare.

    2. Statul salveaza totul, face inflatie si creaza nenumarate locuri de munca prin investitii de stat! Ok, si cine le plateste? Avem un zero sum game in final…

    Problema este alta:

    A. Se consuma mai mult de cat punctul de echilibru stabil… ca urmare vrem nu vrem cu totii trebuie sa acceptam un nivel de viata mai scazut.

    B. Avem un dezechilibru masiv a modului in care sunt distribuite rezultatele muncii. Prea putin agunge la cei ce produc, prea mult la un grup restrans de privilegiati si la cei ce nu produc nimica, ca urmare avem dezechilibru masiv cerere oferta unde cei cu bani nu au in ce sa investeasca, iar cei ce muncesc si ar vrea sa cumpere ce se produce nu au cu ce!

    1. @i-conomics
      Este clar ca suntem intr-un echilibru nefericit unde am ajuns dintr-un punct de echilibru instabil. Problema este ca acum acest echilibru din punctul meu de vedere este stabil. Ne vom misca de aici doar dupa ce pierderile care au fost transferate din sistemul privat in cel public o sa fie eliminate de inflatie. Pana atunci guvernele vor incerca sa stimuleze fiscal economiile si sa le miste din acest punct dar fara politica monetara nu o sa ne miscam. Problema este ca politica monetara trebuie sa stimuleze asa de mult ca pana la urma se va ajunge iar la inflatie mare.

      Eu zic ca o sa fim inca 5 ani cel putin in zona asta. Deja au trecut 5 si inca nu am corectat nimic.

  6. They can’t understand austerity if all European countries are very preoccupied to have the same cars’ registration plates, to put the yellow labels in the ears of the cows and dogs and so on.
    EU has a very obtuse vision of its markets, continuing to make more and more norms and rules and more norms and more rules. They keep pump money in all economies trough structural funds. Basically they do whatever they can to stop the real markets (commercial markets, industrial markets, service markets) do what they are supposed to do: to tune up the economy.
    EU spent billions in small hotel tourism, in financing service companies that provides more and more distorted services that only support the Brussels bureaucracy.
    The lack of the physical inner boundaries is replaced with euro procedures, euro bureaucracy, euro over regulations.
    EU needs a liberalization of its markets: a deregulation of the trade, to stop spend in supporting agricultural economy, to stop invest aleatory in the companies that are in competition.
    Let’s say that some hard-working families built their own small hotel in some nice touristic region. Their hard work and risk investment is now in a hard competition with some new hotels built with European funding. Where is the free market? Where is the true competition?
    If only 5% of the European funding is spent on “consultancy” on “writing projects”, only in Romania 650.000.000 Euros are spent (in theory) to finance companies created only to support the European bureaucracy. The over-all spending just for “European Funding Consultancy” should be billions. These funds are hundreds of billions, all of them being European taxpaying citizens, including Greek, Spaniards, Romanians or Germans.
    The problem is that all of those funds distort the real economy.
    They distort the labor market, the service market, and are a danger to the real competition between the economical players.
    So EU governments can’t practice the austerity they preach, because the whole establishment is based on over-expenditures.

  7. There is austerity, see the governments expanditures and hourly labour cost in Greece Spain Portugal or Ireland and the IMF projections. You can feel the austerity also talking with the people from these countries.

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