The macroeconomic costs of fiscal adjustment in Greece | Eurobank
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The macroeconomic costs of fiscal adjustment in Greece

This note demonstrates that the austerity programs implemented in Greece in the context of the two consecutive bailout programs can fully explain the ensuing contraction in Greek GDP. This is not to say that the country should not have implemented any adjustment in recent years, especially in view of the huge macroeconomic imbalances accumulated in the years leading to the 2007/2008 global financial crisis. Instead, the key message of the simulation exercise presented herein is that the risk that a draconian fiscal austerity program may turn out to be a “self-defeating” proposition increases dramatically when it is implemented in a deep recessionary environment like the one experienced in Greece in recent years.