Just how severe is Greece's austerity? The raw statistics are certainly alarming. This is the fifth year of economic contraction. The economy shrank by 5.5 per cent last year. Some forecasters expect a similar decline this year. Almost half of the population under 25 is out of work. But it is the human stories that paint the most vivid picture of suffering. There have been reports of children being put into care because parents cannot afford to feed them and whole families surviving on the pension of an elderly relative.
And austerity is driving the economy down further. Athens has imposed fiscal consolidation – spending cuts and tax rises – equal to 8 per cent of GDP over the past two years. It is true that other countries – Sweden in the 1990s and Denmark in the 1980s – have experienced austerity on a similar scale. But that was at a time when their neighbours were growing, sucking in exports. And those countries, unlike Greece, were also not locked in fixed exchange rate systems and could thus adjust with the help of large currency deprecations.
"For Greece there aren't any tail winds," says Gustavo Baggatini, an economist at RBC Capital Markets. And there is still more austerity to come. As part of the latest deal to unlock a second bailout, parliamentarians have voted to cut a fifth of public sector jobs by 2015.
And yet the distribution of pain has not been equal. There are still many wealthy Greeks who have pulled their euros out of the Greek banking system, squirreling their cash away in accounts abroad, or even pumping it into the London property market. Domestic taxes are still being avoided, despite the belatedly-imposed anti-avoidance measures. Those who have borne the brunt of austerity so far have been the poorest and least well-connected in Greek society.
There is no doubt that the Greek economy needs deep structural economic reform. But after the violence and destruction in Athens, the unanswered question is whether it is capable of pulling off such an adjustment in such a short space of time without experiencing a disastrous social explosion. We are about to find out.Reuse content