Greek-Style Austerity Would Be Hell for Germans

Spiegel
July 1, 2011

Tough times are ahead for the Greeks, with the government raising taxes, cutting social benefits and selling off state enterprises. Berlin has led the European pack in demanding the measures from Athens. But economists say Germany would be overwhelmed if it were forced to implement similar measures.

The Germans are always way ahead when it comes to austerity measures -- at least when it comes to having an opinion on what cuts other countries should make. The multi-billion-euro austerity package passed by the Greek parliament on Wednesday largely came about because of pressure from Berlin. In recent weeks, Chancellor Angela Merkel and other European Union leaders had repeatedly said that additional aid for Athens would be contingent on more belt-tightening.

The result is a radical austerity package that will mean some €78 billion ($113 billion) in savings and additional revenue by 2015. Some €50 billion will come from privatizations and another €28 billion through tax increases and cuts to social benefits. This comes on top of savings of almost €12 billion last year, when more than 80,000 public workers were sacked and those that remained had their wages cut by 15 percent. Pensions also saw a 10 percent reduction.

The Germans see the Greeks' need to scrimp as self-evident. But could the Germans themselves cope with such penury? Experts are skeptical. "When one considers how much we Germans bickered over €5 more or less for Hartz IV (welfare benefits), it's easier to understand what we're demanding of the Greeks," said Ulrich Blum, president of the Halle Institute for Economic Research (IWH). "Such cuts would also cause problems for the German government in terms of its ability to run the country."

To envisage how such a program would burden the country, a little math is involved. Together with last year's austerity measures, the Greeks hope to save €40 billion by 2015 using tax increases and spending cuts alone. That doesn't sound very dramatic, but the figure alone reveals little. To gain a real sense of the Greeks' savings efforts, one has to look at it in relation to gross domestic product -- the country's entire economic output. Then it becomes clear that within just five years, the Greeks want to cut spending by the equivalent of 17 percent of their total GDP in 2010.

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