To many, this is not news. However, given the persistence of IMF and other international institutions to insist with new austerity measures, it is still surprising.
A good summary of the history of austerity measures in Portugal can be found in the study by Jose Castro Caldas here. What is most interesting, and could be taken as rather alarming, is that the austerity measures seem to have rather worsen the economic situation in Portugal: a deepened recession, almost 20% unemployment.
The article here shows that, paradoxically, the austerity program failed even to achieve its basic objectives: less spending and increased tax revenues. The austerity measures clearly led to a less spending, but the deficit spending pretty much remained the same. On top of that, the ratio of public debt to GDP increased dramatically.
As the above mentioned study by Jose Castro Calda shows, the austerity measures were backed by many on the very reason that “no alternatives exist”. And this is what I find quite puzzling, especially when looking backwards. But alternatives will always exist, particularly when talking about macroeconomic policies.
A good piece to read on how austerity emerged and started to be implemented can be read here. The article by Krugman also points at how alternative policies could have been implemented at certain moments.
We can also look at the opinions expressed Charles Wolf. He makes an interesting point that the austerity and stimulus are potentially equally wrong as general prescriptions (they might apply only for some specific cases). He also argues that we should essentially focus on the response of private sector. Although I am myself inclined to view the debate about austerity vs. stimulus as essentially wrong (I should develop this in a later post), I don’t necessarily agree with him.