Fiscal consolidation, austerity, national debt & monetary programme are all words that have become a part of our daily lives since the crisis broke out in the late noughties. But has austerity really benefited any of the countries it was thrust upon in recent years?
Anyone who read politics or at university in the late nineties and early noughties, will be familiar with the term ‘Celtic Tiger’ a phrase referring to the Irish economy between 1994 and 2001. During this time Ireland enjoyed immense economic growth fueled by foreign investors. This was followed by rapidly rise property prices that caused a bubble & ultimately rendered the real economy uncompetitive. The economy expanded 9.4% (1995-2000), 5.9% during the next ten years and then fell flat on it’s face. What inevitably followed was the failure in the banking sector. The total bailout came to €85 billion, €22 of which were provided by the IMF. Spending cuts and tax hikes between 2008 and 2014 came to around €30 billion, or €6,500 per citizen. Today despite Dublin humbly reminding us all in international media of its fragile economic recovery as it became the first country to ‘successfully complete’ an IMF/EU bailout programme, many problems remain. Even though unemployment has been capped at under just 10%, wages have fallen significantly since the boom times, division of wealth has been greatly altered hammering the middle classes downwards and incurred debt from uncovered fallen house prices is back breaking to many. Despite having exited the programme a package that includes €3.1 billion worth of cuts and tax hikes was passed in 2014 that remains controversial both in the Irish Parliament and among Irish citizens.
In March 2013 Cyprus also found itself in a position where the only way out of financial trouble was to seek international assistance. The exposure of Cypriot banks to property development companies, Greek bonds, & the downgrading Cyprus’ Government Bond to junk status by credit rating agencies, resulted in the inability to refund its state expenses from the international markets. The country’s largest bank, Bank of Cyprus (BOC), went through a major restructuring, at the same time the country’s 2nd biggest bank, Cyprus Popular Bank (CPB), had to be closed down. This resulted in savers at the BOC converting 37% of deposits exceeding €100,000 into shares, and holding an additional 22% a buffer for possible conversion in the future if need arose. Deposits at CPB lost all savings exceeding €100,00. This left the countries economy in shambles, there was a steep rise in unemployment, and the economy shrunk by 5.4 per cent in 2013 alone.
Prolonged recession & rising bond rates is what essentially left Portugal unable to repay or refinance its government debt without thrid party assistance. To prevent insolvency Portugal applied for bail-out programs that now add up to €79.0 billion from the IMF and the European Financial Stability Facility (EFSF). Though less than the Irish bailout programme, Portugal felt the need for international aid when rising bond rates made it unfeasible for the country to raise the funds to cover its annual budgetary requirements. As unemployment rates rose, the government turned to international organizations in mid-2011. Even though the Portuguese economy returned to marginal positive real growth in 2014 the situation on the ground is far from ideal, unemployment is still at all at a high of 13.7, the housing market has taken a beating and the government has failed to bridge the gap in the job market by creating jobs.
The crisis in Spain begun as a housing bubble, when prices suddenly declined at the end of the noughties real estate agents and homeowners that found themselves in mounting debt. But it was the Banks that where left to bear the biggest brunt. And so in 2012 Spain was forced to seek assistance from the European Central Bank (ECB). The Spanish government was forced to trim non performing loans from Spain’s top three lenders and establish SAREB, a ‘bad bank’ to absorb questionable assets. The Spanish bailout so far is €141 billion. However, debt is now more than 100% of GDP and unemployment over 25%, many argue that Spain is still not in the clear.
Quite probably the only country to have almost defaulted multiple time in the last few years Greece just may be the shinning example that the same medicine does not work for all fiscal maladies, austerity only seems to be deepening the crisis. Greece has just signed a third bailout and the left wing coalition government that agreed to it was re-elected just days ago, but many claim this is no real cause for market assurance. On a macro-level the Euro still seems to be ‘down in the dumps’ & on a more local level things on the ground in Greece are no better than they where before this shebang begun in 2010, the unemployment peaked at 27.9% in July with youth unemployment soaring, the welfare state simply can not cope, at the same time homelessness is yet again on the rise, and there is little or no European faith in Alexis Tsipras the left wing PM. The Intentional Monitory Fund (IMF) itself, published in a recent report that in the long term Greek debt is unsustainable without a hefty haircut.