Europe’s austerity prevarication

Despite all the talk of austerity in Europe the reality for most is that it has had little impact so far.

In a useful round-up of the situation in different countries the Economist argues that cuts in the larger European countries are likely to be small or even non-existent this year:

“Judged by the claims of those who welcome the new fiscal austerity, as well as those who fear it, a gigantic fiscal blow is about to land. The true picture is not quite so dramatic. Take Germany’s measures, for instance. The €80 billion of cuts claimed by the government will be made over four years. Most of the savings are coming in 2013 and 2014. The effect on next year’s budget will be just €11.2 billion, less than 0.5% of GDP. With all the talk of cuts, it is easy to forget that Germany’s budget deficit will widen this year by 1.5-2% of GDP as the delayed effect of earlier stimulus measures comes through.”

The trend is different in the smaller countries according to a study by Barclays Capital quoted in the magazine. Greece leads the way with budget cuts of 7% of GDP expected this year and 4% next year. Ireland will have the second most severe cuts this year at 3.0% with Portugal and Spain at 2.5%.