Citation:
Constantinos Alexiou and Joseph G Nellis, A post-mortem of austerity: the Greek experience, Economic Issues, Vol. 21, Part 2, 2016
Abstract:
The policies of economic austerity are invoked whenever a country's public
deficit is spiralling out of control. Given the intricate channels through which
deficits and debt can be financed, i.e. either through borrowing or money creation,
manipulation of public deficits may pose significant constraints on economic
growth, social cohesion and political stability. In this context, austerity is
a policy expedient that, if applied irresponsibly, might have irreversible effects
on both economic and social structures. In Greece economic policies of austerity,
in conjunction with internal devaluation, have been adopted in an attempt to
improve competitiveness, correct external deficits and promote export-led
growth. In this paper, by scrutinising a range of key economic indicators, we
argue that austerity has depressed significantly the real economy in Greece,
threatening further an already crippled economic environment with a danger of
further stagnation. We also provide econometric evidence for the period 2000 -
2013 which shows that the positive contribution of net exports to economic
growth in Greece has been as a result of relatively low domestic demand, not to
relative gains in the international price competitiveness of Greek enterprises.
Finally, it is envisaged that the lack of adequate endogenous capacity as a
means of galvanising economic growth has the potential to usher in prolonged
periods of economic depression.