Eurozone
During the European debt crisis, many countries embarked on austerity programs, reducing their budget deficits relative to GDP from 2010 to 2011. For example, according to the CIA World Factbook, Greece decreased its budget deficit from 10.4% of GDP in 2010 to 9.6% in 2011. Iceland, Italy, Ireland, Portugal, France, and Spain also decreased their budget deficits from 2010 to 2011 relative to GDP. [11] [49] But the austerity policy of the Eurozone achieves not only the reduction of budget deficits. The goal of economic consolidation influences, for example, the future development of the European Social Model which unfolds already liberalisation tendencies in the Eurozone as a whole. [50]
However, with the exception of Germany, each of these countries had public-debt-to-GDP ratios that increased from 2010 to 2011, as indicated in the chart at right. Greece's public-debt-to-GDP ratio increased from 143% in 2010 to 165% in 2011. [49] This indicates that despite declining budget deficits, GDP growth was not sufficient to support a decline in the debt-to-GDP ratio for these countries during this period. Eurostat reported that the overall debt-to-GDP ratio for the EA17 was 70.1% in 2008, 80.0% in 2009, 85.4% in 2010, 87.3% in 2011, and 90.6% in 2012. [11] [12] [51] Further, real GDP in the EA17 declined for six straight quarters from Q4 2011 to Q1 2013. [52]
Unemployment is another variable considered in evaluating austerity measures. According to the CIA World Factbook, from 2010 to 2011, the unemployment rates in Spain, Greece, Ireland, Portugal, and the UK increased. France and Italy had no significant changes, while in Germany and Iceland the unemployment rate declined. [49] Eurostat reported that Eurozone unemployment reached record levels in March 2013 at 12.1%, [53] up from 11.6% in September 2012 and 10.3% in 2011. Unemployment varied significantly by country. [10]
Economist Martin Wolf analyzed the relationship between cumulative GDP growth in 2008–2012 and total reduction in budget deficits due to austerity policies (see chart at right) in several European countries during April 2012. He concluded, "In all, there is no evidence here that large fiscal contractions [budget deficit reductions] bring benefits to confidence and growth that offset the direct effects of the contractions. They bring exactly what one would expect: small contractions bring recessions and big contractions bring depressions." Changes in budget balances (deficits or surpluses) explained approximately 53% of the change in GDP, according to the equation derived from the IMF data used in his analysis. [54]
Similarly, economist Paul Krugman analyzed the relationship between GDP and reduction in budget deficits for several European countries in April 2012 and concluded that austerity was slowing growth. He wrote: "this also implies that 1 euro of austerity yields only about 0.4 euros of reduced deficit, even in the short run. No wonder, then, that the whole austerity enterprise is spiraling into disaster." [55]
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