Just how severe is the austerity in Greece? Extremely so. Since 2010, the Greek government has pushed through the largest fiscal consolidation of any nation in the eurozone. The deficit has been slashed by a whopping 6.5 percentage points – from 15.4 per cent of GDP to 9 per cent. To put that into context, our own government has cut the UK deficit over the same period by 2.8 percentage points.
And this reduction in government borrowing has unquestionably translated into real economic pain for the Greek people. Public sector wages were slashed by 15 per cent in 2010, while public sector employment fell by 10 per cent. And this is only the beginning. Greece has been told to reduce its deficit to 1 per cent by 2015, bringing more savage cuts into incomes and pensions.
Many Greeks are angry at their European neighbours for demanding Greece adopts these cuts as the price of its bailout by the rest of the eurozone and the International Monetary Fund. The expected surge in support for anti-European parties in elections on Sunday is a political consequence. To some extent this anger is misplaced. Had Greece not been in the eurozone, the country would have gone bankrupt. Then it would have been forced to close its budget deficit much more quickly and inflict much more pain on its people.
But in another sense, the resentment at the direction of the fiscal policy being implemented is justified since that economic medicine is plainly hurting the economy. In 2010, the European Commission forecast that Greece would grow by 1.1 per cent in 2012 because all the cuts would unleash a flood of confidence and investment. That has proved nonsense.
Greece was a badly-run economy before the crisis and the pain for its population was inevitable. Cuts alone are not the answer – it needs more time and help to adjust. Otherwise the risk of the Greek people deciding they are better off outside the euro will only grow.