UK has cut too deeply, but don't misread Greece's hardship

Written by Simon Tilford [1], 26 June 2013
From Financial Times

From Mr Simon Tilford.

Sir, The UK Treasury may well be guilty of many of the failings Philip Stephens attributes to it (“The best spending cut of all? Shut down the Treasury”, June 24). The British coalition government has also no doubt tightened fiscal policy by too much, weakening the economic recovery and undermining its own drive to bring down government borrowing. But to imply that Greece’s deficit will soon be lower than the UK’s because it eschewed front-loaded austerity, and hence the economic damage flowing from it, is confused.

Greece has made budget cuts of around 15 per cent of gross domestic product, many times the amount seen in the UK. The Greek economy has shrunk by around 20 per cent since the onset of the crisis as opposed to 2 per cent in the UK. According to Eurostat (the EU’s statistical office), Greece’s budget deficit was 10 per cent of GDP in 2012; the UK’s was 6.3 per cent. It is possible that Greece’s deficit will soon be half the UK’s, but if so it will have come at a further devastating cost to the Greek economy.

Simon Tilford, Chief Economist, Centre for European Reform, London SW1, UK