First let me start with the Investopedia Definition of Austerity:
This pretty much is in line with what all media outlets are using for their reporting. Around the world, media and politicians and Keynesian Economists are claiming that Europe is a perfect example of why Austerity is failing and causing another recession. They claim that European countries have cut their government spending and this is making things worse.
They then hold up the USA with its huge increases in spending and stimulus policies to show how things should be done to improve the economy. While many admit that the US economy is not fully recovered, the claim is that all that is needed is a bigger increase in spending and more stimulus and then everything will be sunshine and lollipops.
Comments like this have been repeated so many times that most people simply believe that Europe has followed a plan of austerity, i.e. actually cut spending, and that this is making things worse. While I agree that many European politicians constantly talk about every effort being made to cut spending, I believe that that is all they have done, i.e. talk about it. Ireland and the UK are constantly held up as examples of how bad austerity is for the economy, but is this really true?
Of course, everyone is entitled to their own opinion, but they are not entitled to their own facts. So let's look at the facts about European government spending and GDP growth.
This first table shows European countries' GDP growth sorted by the 2011 value. What stands out here is that the top three places are made up of the three Baltic States Latvia, Lithuania and Estonia, all with double digit GDP growth in 2011. So what have these countries done to get such a large increase in GDP? Let's take a look at the next table below.
|GEO|2003|2004|2005|2006|2007|2008|2009|2010|2011|
|Latvia|11.70|16.48|21.30|23.62|32.30|9.27|-18.74|-2.19|11.66|
|Lithuania|9.32|10.07|14.93|14.95|19.23|12.79|-17.77|3.58|11.59|
|Estonia|12.12|11.08|15.45|19.76|20.00|1.03|-15.23|4.08|11.37|
|Romania|29.87|25.30|16.81|19.28|20.70|23.72|-2.63|4.27|10.71|
|Norway|3.91|10.09|11.76|11.33|5.76|10.99|-6.94|6.80|8.08|
|Poland|4.28|9.65|6.36|7.80|11.01|8.39|5.41|5.36|7.53|
|Luxembourg|7.67|6.28|10.29|12.04|10.56|-0.33|-3.60|10.77|6.81|
|Bulgaria|7.90|11.20|14.21|13.85|16.22|15.14|-1.40|3.20|6.74|
|Finland|1.31|4.63|3.39|5.30|8.48|3.25|-7.19|3.76|5.91|
|Iceland|3.07|10.53|10.28|13.93|11.97|13.13|1.17|2.60|5.85|
|Austria|2.03|4.32|4.49|5.62|5.79|3.18|-2.33|3.71|5.00|
|Sweden|4.14|4.56|4.07|6.32|6.17|2.50|-3.07|7.46|4.94|
|Slovakia|10.34|11.20|9.20|11.53|11.72|8.78|-6.06|4.90|4.92|
|Hungary|9.46|10.28|6.55|7.52|5.55|6.22|-3.45|3.83|4.81|
|Malta|-0.52|0.27|5.85|5.61|7.64|7.15|-0.03|6.44|4.24|
|Germany|0.72|2.24|1.31|4.02|4.95|1.87|-4.01|5.13|3.86|
|Belgium|2.81|5.48|4.17|5.07|5.33|3.14|-1.62|4.50|3.85|
|United Kingdom|6.36|5.57|5.24|5.58|5.92|2.04|-2.71|4.62|3.58|
|Cyprus|5.17|8.08|7.96|7.89|8.39|7.90|-1.77|3.28|3.29|
|France|2.91|4.26|3.77|4.66|4.93|2.46|-2.45|2.73|3.06|
|European Union (27 countries)|1.70|4.97|4.40|5.68|6.03|0.54|-5.76|4.45|3.03|
|Euro area (17 countries)|2.95|4.15|3.63|5.15|5.43|2.35|-3.46|2.84|2.67|
|Netherlands|2.52|2.99|4.52|5.22|5.84|3.97|-3.57|2.70|2.25|
|Switzerland|0.85|3.28|2.95|6.04|6.45|5.00|-2.37|3.60|2.17|
|Denmark|2.04|4.68|5.39|5.59|3.90|3.41|-5.04|5.79|1.73|
|Italy|3.07|4.16|2.77|3.94|4.10|1.35|-3.52|2.20|1.71|
|Ireland|7.60|6.65|8.55|9.01|6.19|-5.22|-9.84|-2.97|1.60|
|Slovenia|8.63|7.82|5.73|8.09|11.43|7.66|-4.53|0.14|1.59|
|Spain|7.38|7.43|8.08|8.39|6.86|3.29|-3.65|0.08|1.38|
|Czech Republic|4.70|8.97|6.38|7.59|9.25|5.07|-2.32|1.08|1.10|
|Portugal|2.07|4.07|3.32|4.27|5.26|1.57|-2.02|2.47|-1.02|
|Greece|10.10|7.44|4.20|8.07|6.97|4.50|-0.91|-3.86|-6.13|
This next table shows European countries' government spending increases/decreases, sorted by the 2010 data (data for 2011 is not yet available). One thing that immediately stands out is that the three baltic states have all shown a decrease in spending for two years running, 2009 and 2010. This means that they have actually cut their government spending consistently; or put in other words, they have actually introduced measured austerity.
|GEO|2003|2004|2005|2006|2007|2008|2009|2010|
|Greece|9.25|9.32|2.09|9.69|12.32|11.11|5.76|-8.36|
|Estonia|9.14|8.43|14.15|19.77|21.35|17.90|-2.76|-7.17|
|Lithuania|4.47|10.67|14.98|15.73|23.42|21.21|-3.35|-3.35|
|Bulgaria|6.75|9.60|10.37|4.99|34.44|10.92|3.97|-2.82|
|Latvia|8.34|19.81|21.06|32.18|24.01|18.92|-8.13|-2.13|
|Spain|6.01|8.77|6.83|8.14|9.26|9.20|7.50|-1.05|
|Czech Republic|14.80|-5.68|5.71|4.99|6.83|5.35|6.07|-0.86|
|Italy|5.17|2.97|3.61|5.10|2.34|3.42|2.94|-0.73|
|Hungary|5.52|8.94|8.82|11.88|2.54|3.21|0.79|0.48|
|Slovakia|-1.73|4.39|10.09|7.25|4.65|11.02|11.74|1.03|
|Slovenia|8.70|6.63|4.75|6.36|6.09|12.33|5.53|1.98|
|Romania|24.10|25.67|16.95|26.20|29.85|27.12|1.88|1.98|
|Euro area (17 countries)|3.97|2.99|3.39|3.66|3.96|4.87|4.90|2.10|
|Netherlands|4.49|0.79|1.57|6.98|5.21|6.16|7.15|2.31|
|France|3.94|3.99|4.38|3.50|4.20|3.77|3.94|2.34|
|Belgium|5.42|1.98|9.90|-1.95|4.69|6.51|6.09|2.39|
|Sweden|4.28|1.76|3.45|4.07|2.62|3.96|2.63|2.58|
|United Kingdom|8.59|7.62|7.07|6.13|5.16|11.17|4.41|2.68|
|Switzerland|0.00|0.00|0.00|0.42|2.54|4.76|3.66|2.86|
|Cyprus|18.94|2.49|8.81|6.32|6.47|10.48|7.83|3.10|
|Finland|3.99|4.43|3.70|2.89|4.50|7.34|5.71|3.15|
|European Union (27 countries)|2.97|3.97|4.36|4.53|4.54|3.82|2.05|3.47|
|Austria|3.33|9.27|-2.84|3.84|4.62|4.74|4.19|3.62|
|Iceland|6.22|6.62|5.90|12.29|13.66|54.35|-10.59|3.74|
|Germany|1.80|-0.68|0.95|0.56|0.71|3.11|4.82|3.82|
|Norway|6.34|3.16|3.52|6.64|6.55|9.43|8.15|4.28|
|Malta|13.78|-2.55|5.02|4.45|3.68|10.25|-1.60|4.64|
|Denmark|2.97|3.70|1.99|3.18|2.33|4.87|7.07|5.00|
|Portugal|5.61|6.18|5.84|1.42|5.26|2.61|9.12|5.49|
|Luxembourg|8.33|8.24|7.61|4.07|3.91|7.61|10.00|6.29|
|Poland|5.26|4.61|8.39|8.86|6.76|10.97|8.54|7.38|
|Ireland|6.60|8.05|9.53|10.77|13.84|10.78|1.66|33.07|
Romania is another country in the top 5 for GDP growth, and while they have not actually cut spending they have increased spending by less than 2% in each of the years 2009 and 2010. This is very significant considering that Romania was increasing spending by almost 30% in each of the years 2006, 2007, 2008.
Some people might pick up on Norway and that it is ranking high in GDP growth while still consistently increasing spending by 6-8%. What has to be pointed out here though is that for the 4 years from 2005 to 2008, Norway was running a budget surplus of between 3.5% and 8.7%. Over the past 6 years, they have been living well within their means.
How do things look for Ireland? Well, on the spending side there has been absolutely no decrease, only massive increases except for 2009. Thus, it is no surprise that ireland is 6th last on this list for GDP growth in 2011.
To claim that austerity is failing here or throughout Europe is simply a myth and a lie, as the above figures show. If anything, this proves that actual austerity works if actually done and not just talked about.
Data Source: Eurostat
A state of reduced spending and increased frugality in the financial sector. Austerity measures generally refer to the measures taken by governments to reduce expenditures in an attempt to shrink their growing budget deficits.
This pretty much is in line with what all media outlets are using for their reporting. Around the world, media and politicians and Keynesian Economists are claiming that Europe is a perfect example of why Austerity is failing and causing another recession. They claim that European countries have cut their government spending and this is making things worse.
They then hold up the USA with its huge increases in spending and stimulus policies to show how things should be done to improve the economy. While many admit that the US economy is not fully recovered, the claim is that all that is needed is a bigger increase in spending and more stimulus and then everything will be sunshine and lollipops.
Comments like this have been repeated so many times that most people simply believe that Europe has followed a plan of austerity, i.e. actually cut spending, and that this is making things worse. While I agree that many European politicians constantly talk about every effort being made to cut spending, I believe that that is all they have done, i.e. talk about it. Ireland and the UK are constantly held up as examples of how bad austerity is for the economy, but is this really true?
Of course, everyone is entitled to their own opinion, but they are not entitled to their own facts. So let's look at the facts about European government spending and GDP growth.
This first table shows European countries' GDP growth sorted by the 2011 value. What stands out here is that the top three places are made up of the three Baltic States Latvia, Lithuania and Estonia, all with double digit GDP growth in 2011. So what have these countries done to get such a large increase in GDP? Let's take a look at the next table below.
|Latvia|11.70|16.48|21.30|23.62|32.30|9.27|-18.74|-2.19|11.66|
|Lithuania|9.32|10.07|14.93|14.95|19.23|12.79|-17.77|3.58|11.59|
|Estonia|12.12|11.08|15.45|19.76|20.00|1.03|-15.23|4.08|11.37|
|Romania|29.87|25.30|16.81|19.28|20.70|23.72|-2.63|4.27|10.71|
|Norway|3.91|10.09|11.76|11.33|5.76|10.99|-6.94|6.80|8.08|
|Poland|4.28|9.65|6.36|7.80|11.01|8.39|5.41|5.36|7.53|
|Luxembourg|7.67|6.28|10.29|12.04|10.56|-0.33|-3.60|10.77|6.81|
|Bulgaria|7.90|11.20|14.21|13.85|16.22|15.14|-1.40|3.20|6.74|
|Finland|1.31|4.63|3.39|5.30|8.48|3.25|-7.19|3.76|5.91|
|Iceland|3.07|10.53|10.28|13.93|11.97|13.13|1.17|2.60|5.85|
|Austria|2.03|4.32|4.49|5.62|5.79|3.18|-2.33|3.71|5.00|
|Sweden|4.14|4.56|4.07|6.32|6.17|2.50|-3.07|7.46|4.94|
|Slovakia|10.34|11.20|9.20|11.53|11.72|8.78|-6.06|4.90|4.92|
|Hungary|9.46|10.28|6.55|7.52|5.55|6.22|-3.45|3.83|4.81|
|Malta|-0.52|0.27|5.85|5.61|7.64|7.15|-0.03|6.44|4.24|
|Germany|0.72|2.24|1.31|4.02|4.95|1.87|-4.01|5.13|3.86|
|Belgium|2.81|5.48|4.17|5.07|5.33|3.14|-1.62|4.50|3.85|
|United Kingdom|6.36|5.57|5.24|5.58|5.92|2.04|-2.71|4.62|3.58|
|Cyprus|5.17|8.08|7.96|7.89|8.39|7.90|-1.77|3.28|3.29|
|France|2.91|4.26|3.77|4.66|4.93|2.46|-2.45|2.73|3.06|
|European Union (27 countries)|1.70|4.97|4.40|5.68|6.03|0.54|-5.76|4.45|3.03|
|Euro area (17 countries)|2.95|4.15|3.63|5.15|5.43|2.35|-3.46|2.84|2.67|
|Netherlands|2.52|2.99|4.52|5.22|5.84|3.97|-3.57|2.70|2.25|
|Switzerland|0.85|3.28|2.95|6.04|6.45|5.00|-2.37|3.60|2.17|
|Denmark|2.04|4.68|5.39|5.59|3.90|3.41|-5.04|5.79|1.73|
|Italy|3.07|4.16|2.77|3.94|4.10|1.35|-3.52|2.20|1.71|
|Ireland|7.60|6.65|8.55|9.01|6.19|-5.22|-9.84|-2.97|1.60|
|Slovenia|8.63|7.82|5.73|8.09|11.43|7.66|-4.53|0.14|1.59|
|Spain|7.38|7.43|8.08|8.39|6.86|3.29|-3.65|0.08|1.38|
|Czech Republic|4.70|8.97|6.38|7.59|9.25|5.07|-2.32|1.08|1.10|
|Portugal|2.07|4.07|3.32|4.27|5.26|1.57|-2.02|2.47|-1.02|
|Greece|10.10|7.44|4.20|8.07|6.97|4.50|-0.91|-3.86|-6.13|
This next table shows European countries' government spending increases/decreases, sorted by the 2010 data (data for 2011 is not yet available). One thing that immediately stands out is that the three baltic states have all shown a decrease in spending for two years running, 2009 and 2010. This means that they have actually cut their government spending consistently; or put in other words, they have actually introduced measured austerity.
|Greece|9.25|9.32|2.09|9.69|12.32|11.11|5.76|-8.36|
|Estonia|9.14|8.43|14.15|19.77|21.35|17.90|-2.76|-7.17|
|Lithuania|4.47|10.67|14.98|15.73|23.42|21.21|-3.35|-3.35|
|Bulgaria|6.75|9.60|10.37|4.99|34.44|10.92|3.97|-2.82|
|Latvia|8.34|19.81|21.06|32.18|24.01|18.92|-8.13|-2.13|
|Spain|6.01|8.77|6.83|8.14|9.26|9.20|7.50|-1.05|
|Czech Republic|14.80|-5.68|5.71|4.99|6.83|5.35|6.07|-0.86|
|Italy|5.17|2.97|3.61|5.10|2.34|3.42|2.94|-0.73|
|Hungary|5.52|8.94|8.82|11.88|2.54|3.21|0.79|0.48|
|Slovakia|-1.73|4.39|10.09|7.25|4.65|11.02|11.74|1.03|
|Slovenia|8.70|6.63|4.75|6.36|6.09|12.33|5.53|1.98|
|Romania|24.10|25.67|16.95|26.20|29.85|27.12|1.88|1.98|
|Euro area (17 countries)|3.97|2.99|3.39|3.66|3.96|4.87|4.90|2.10|
|Netherlands|4.49|0.79|1.57|6.98|5.21|6.16|7.15|2.31|
|France|3.94|3.99|4.38|3.50|4.20|3.77|3.94|2.34|
|Belgium|5.42|1.98|9.90|-1.95|4.69|6.51|6.09|2.39|
|Sweden|4.28|1.76|3.45|4.07|2.62|3.96|2.63|2.58|
|United Kingdom|8.59|7.62|7.07|6.13|5.16|11.17|4.41|2.68|
|Switzerland|0.00|0.00|0.00|0.42|2.54|4.76|3.66|2.86|
|Cyprus|18.94|2.49|8.81|6.32|6.47|10.48|7.83|3.10|
|Finland|3.99|4.43|3.70|2.89|4.50|7.34|5.71|3.15|
|European Union (27 countries)|2.97|3.97|4.36|4.53|4.54|3.82|2.05|3.47|
|Austria|3.33|9.27|-2.84|3.84|4.62|4.74|4.19|3.62|
|Iceland|6.22|6.62|5.90|12.29|13.66|54.35|-10.59|3.74|
|Germany|1.80|-0.68|0.95|0.56|0.71|3.11|4.82|3.82|
|Norway|6.34|3.16|3.52|6.64|6.55|9.43|8.15|4.28|
|Malta|13.78|-2.55|5.02|4.45|3.68|10.25|-1.60|4.64|
|Denmark|2.97|3.70|1.99|3.18|2.33|4.87|7.07|5.00|
|Portugal|5.61|6.18|5.84|1.42|5.26|2.61|9.12|5.49|
|Luxembourg|8.33|8.24|7.61|4.07|3.91|7.61|10.00|6.29|
|Poland|5.26|4.61|8.39|8.86|6.76|10.97|8.54|7.38|
|Ireland|6.60|8.05|9.53|10.77|13.84|10.78|1.66|33.07|
Romania is another country in the top 5 for GDP growth, and while they have not actually cut spending they have increased spending by less than 2% in each of the years 2009 and 2010. This is very significant considering that Romania was increasing spending by almost 30% in each of the years 2006, 2007, 2008.
Some people might pick up on Norway and that it is ranking high in GDP growth while still consistently increasing spending by 6-8%. What has to be pointed out here though is that for the 4 years from 2005 to 2008, Norway was running a budget surplus of between 3.5% and 8.7%. Over the past 6 years, they have been living well within their means.
How do things look for Ireland? Well, on the spending side there has been absolutely no decrease, only massive increases except for 2009. Thus, it is no surprise that ireland is 6th last on this list for GDP growth in 2011.
To claim that austerity is failing here or throughout Europe is simply a myth and a lie, as the above figures show. If anything, this proves that actual austerity works if actually done and not just talked about.
Data Source: Eurostat