Greece may not be very large by gross domestic product or population, but it could be the single most important test for the effects of austerity. Its unemployment rate is now 23.1%, second only to Spain’s among EU nations. And the government has proposed layoffs that are rumored to be as high as 20,000. Though no figure for increased unemployment has been tied to that, it would certainly push the Greek total to near 25%.
Greece continues to struggle with budget cuts mandated by its neighbors to get all of the bailout funds it needs. The austerity plan involves cuts of 11.5 billion euros. According to the Wall Street Journal, Finance Minister Yannis Stournaras said, “The numbers are not easy to find; the €11.5 billion is a significant number and we are not there yet. We are short by about €3.5 billion to €4 billion.”
While the Greek government wrestles with ways to reach its target, the idea of cutting so many jobs is mad on the face of it. Each of the fired workers cuts into consumer spending and consumer confidence. The tax base becomes further undermined. The need for public services for the jobless rises, although there obviously will be no money to support these services. The entire cycle is a formula to drive an economy that is shrinking at a rate of 5% into a deep depression that may not end for years.
The same sort of cuts will be required of Spain, if it needs a massive bailout. These probably will not be as large as Greece’s on a percentage basis. But unemployment in Spain is already at 25%. It is not impossible to imagine that government layoffs in Spain, married with an a lack of stimulus, might push that jobless number toward 30%, a figure that would bypass levels in the United States during the worst part of the Great Depression.
The test of government austerity in Greece cannot be successful. It cuts the economic recovery prospects close to zero.
Douglas A. McIntyre