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Has Austerity Succeeded in Ameliorating the Economic Climate? The Cases of Ireland, Cyprus and Greece

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  • Marcell Zoltán Végh

    () (Faculty of Economics and Business Administration, University of Szeged, Kálvária sgt. 1., Szeged H-6722, Hungary)

Abstract

The Great Recession that began in 2008 hit the economy of the European Union extremely hard. The year 2009 brought decline to the majority of the member states, inducing a desperate crisis management process. The few common EU-level crisis management measures that were implemented have brought about little success due to the modest volume of the common budget and the inertia of decision making attempting to harmonize often contradicting interests. As there was no credible crisis management at the EU level, most member states introduced their own set of measures. The efficiency of these was influenced by the economic performance of primary trading and investing partners, and by the volatility of the bond markets. In terms of economic performance, member states of the EU followed various paths and experienced various levels of recession in 2009, then various levels of upswing in 2010–2011, only to be hit by a second wave of recession of various extents after 2011. Although many member states took their own measures, general tendencies in crisis management can be defined. At first, the restoration of the functioning of the markets was targeted by generating additional demand through fiscal stimulus, but was then gradually replaced by imperative fiscal consolidation and austerity measures. The effectiveness of austerity programs is questionable: while the bond markets’ volatility called for the correction of fiscal balances, tax hikes and governmental spending cuts tendentiously pushed back economic performance and postponed recovery, making economic growth possible only by increasing public debts. In this study, I present arguments in favour of the view that, in the current economic climate of the EU, prosperity could not be restored exclusively by austerity. Accordingly, I present case studies of the three member states with the largest increases in public debts: Ireland, Cyprus and Greece. My aim is to assess the efficiency of these member states’ crisis management procedures: whether state interventions financed by public debt could result in economic recovery. I also argue that, given the current economic situation, the recovery in these member states in times of crisis is not foreseen.

Suggested Citation

  • Marcell Zoltán Végh, 2014. "Has Austerity Succeeded in Ameliorating the Economic Climate? The Cases of Ireland, Cyprus and Greece," Social Sciences, MDPI, Open Access Journal, vol. 3(2), pages 1-20, June.
  • Handle: RePEc:gam:jscscx:v:3:y:2014:i:2:p:288-307:d:37186
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    References listed on IDEAS

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    1. Sebastian Dellepiane & Niamh Hardiman & Jon Las Heras, 2013. "Building on easy money:The political economy of housing bubbles in Ireland and Spain," Working Papers 201318, Geary Institute, University College Dublin.
    2. Iulia Monica Oehler-Sincai, 2013. "Financial Contagion Reloaded: The Case Of Cyprus," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 1(1), pages 66-74, May.
    3. Gärtner, Manfred & Griesbach, Björn & Mennillo, Giulia, 2013. "The near-death experience of the Celtic Tiger: a model-driven narrative from the European sovereign debt crisis," Economics Working Paper Series 1321, University of St. Gallen, School of Economics and Political Science.
    4. Tim Callan & Brian Nolan & Claire Keane & Michael Savage & John Walsh, 2014. "Crisis, response and distributional impact: the case of Ireland," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-17, December.
    5. Gibson, Heather D. & Hall, Stephen G. & Tavlas, George S., 2014. "Fundamentally Wrong: Market Pricing of Sovereigns and the Greek Financial Crisis," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 405-419.
    6. Anita Pelle, 2013. "The European Social Market Model in Crisis: At a Crossroads or at the End of the Road?," Social Sciences, MDPI, Open Access Journal, vol. 2(3), pages 1-16, July.
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    More about this item

    Keywords

    European Union; global crisis; crisis management; the Great Recession; austerity; stimulus;

    JEL classification:

    • A - General Economics and Teaching
    • B - Schools of Economic Thought and Methodology
    • N - Economic History
    • P - Economic Systems
    • Y80 - Miscellaneous Categories - - Related Disciplines - - - Related Disciplines
    • Z00 - Other Special Topics - - General - - - General

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