Did austerity after 2010 work?
Shaped the euro crisis and a decade of European politics.
Side A
Necessary, and can even help growth
High-debt countries faced bond-market panic; cutting deficits restores confidence.
Evidence
Alesina and Ardagna (2010) argued spending-based cuts could be expansionary. Rising Greek, Irish and Portuguese bond yields in 2010–12 showed markets were losing trust.
Side B
Self-defeating in a slump
Cutting spending in a recession shrinks the economy, so debt ratios rise anyway.
Evidence
Blanchard and Leigh (IMF, 2013) found forecasters underestimated multipliers. Reinhart and Rogoff's “90% debt threshold” contained a spreadsheet error (Herndon, Ash and Pollin, 2013). Greek GDP fell by roughly a quarter from 2008 to 2013.
What to watch
What calmed markets in the end: the ECB's July 2012 pledge to do “whatever it takes” to save the euro.
Where I lean
Only you can see this. It's saved in this browser, and nothing is sent anywhere.