The elites of Europe made a mad dash for their smelling salts yesterday when the Greek people rebelled against the IMF, the European Central Bank and the European Commission and elected politicians who promised to govern Greece for the benefit of Greeks, which of course is a crazy far-left radical idea that no sensible elitist would approve. The new members of Parliament and their new Prime Minister,Â Alexis Tsipras, ran on an anti-austerity platform that proposed the Greek people shouldn’t have to suffer for the sins of international finance.
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Krugman points out in his column today that the austerity measures crammed down Greece’s throat not only caused untold hardship for Greeks but left the country deeper in debt.
What went wrong? I fairly often encounter assertions to the effect that Greece didnâ€™t carry through on its promises, that it failed to deliver the promised spending cuts. Nothing could be further from the truth. In reality, Greece imposed savage cuts in public services, wages of government workers and social benefits. Thanks to repeated further waves of austerity, public spending was cut much more than the original program envisaged, and itâ€™s currently about 20 percent lower than it was in 2010.
Yet Greek debt troubles are if anything worse than before the program started. One reason is that the economic plunge has reduced revenues: The Greek government is collecting a substantially higher share of G.D.P. in taxes than it used to, but G.D.P. has fallen so quickly that the overall tax take is down. Furthermore, the plunge in G.D.P. has caused a key fiscal indicator, the ratio of debt to G.D.P., to keep rising even though debt growth has slowed and Greece received some modest debt relief in 2012.
Other commenters are skeptical that the new government can deliver what it promises, for a variety of reasons. But as Krugman says, ” in calling for a major change, Mr. Tsipras is being far more realistic than officials who want the beatings to continue until morale improves.”