The latest edition of Greek newspaper Kathimerini has an interesting article about the general failure of austerity, and the current government’s refusal to go further.The story is a tad confusing (apparently opposition politicians are spreading talk of more austerity needed, while current leaders deny the need), but the maths behind the failure of austerity seems pretty clear.
As the government and opposition argued about whether or not new measures are on the cards, Finance Ministry figures indicated that an original austerity program of tax hikes and salary cuts had failed to bring in the projected revenue. An increase in the tax on tobacco, for example, brought in an additional 250 million euros in the first six months of the year, far below the target of 1.13 billion euros. Overall increases in the tax on tobacco, fuel and alcohol are believed to have failed to hit the target due to the parallel wage cuts, which have led to a plunge in consumer spending. Experts estimate that losses to state revenue because of the slump in consumer spending will amount to 2 billion euros by the end of the year.
It seems that across Europe, we’re finally getting some insight on the effects of austerity, and what we’re not finding are any success stories. From Greece to Ireland, bond spreads are blowing out back to old levels. This is why.
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