Prices and programs. Greece did already implement lots of austerity measures.

Johan van Overtveldt, the Belgian minister of finance, is wrong. In an interview with him in the Financial Times we can read:

Although Mr Van Overtveldt says he agrees with Mr Varoufakis that the Greek programme has been a “failure”, he believes authorities in Athens are to blame — not creditor countries.

“It works in Spain, it works in Portugal, it worked in Ireland,” said Mr Van Overtveldt. “But then it does not work in Greece, because the Greek authorities have not done what they needed to do, not across the board.”

“Don’t blame it on ‘the institutions’,” he added. “It is not the programme, it is the execution.”

But he is wrong. Austerity consists of a supposedly magic tonic of wage cuts and less government expenditure plus less rights for labor which has to lead to a lower price level which will somehow solve the unemployment problem. Greece implemented such policies much more successfully than other countries: after 2008 the cost price of government consumption (education, the police and comparable services) went down more than in other program countries (graph 1). But it did not work…

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All data: Eurostat, irish data in graph two: GDP price level instead of domestic demand price level.

Compared with Spain and Portugal the domestic price level declined quite a lot (graph 2). And it is hazardous to compare export prices as countries export different sets of goods and services – but the evidence shows that after 2008 Greece at least did nog lag (graph 3). When we look at the 2004-2013 period hourly wages in Greece shows a large relative decline compared with direct competitors (think of the price sensitive tourist market!) like Slovenia, Cyprus, Spain, Portugal and Italy – though the Greek general price level only seems to follow this development with a lag (graph 4). But despite this ‘success’ – or, because of it? – the Greek economy is a mess. It did not work. We should, when rating the success (or not) of austerity of course not restrict our analysis to the post 2008 period but look at the entire Euro period. it’s hard to call this anything else than a disaster for countries like Spain, Greece and Portugal. And Irish growth? This stalled again, in the last half year of 2014.