Public sector expenditure cut when economies are not already imploding

Portugal slashed its public sector deficit by more than half in a single year, when measured as a proportion of GDP, the national statistics bureau has said, taking the shortfall comfortably below euro zone limits.

The deficit dropped to 2.1%  of gross domestic product in 2016, a staggering reduction from its 4.4%  level a year earlier.

This confirms Finance Minister Mario Centeno’s prediction last month that the deficit would be “not more than 2.1%”, its lowest share of GDP since the advent of democracy in 1974.

Euro zone members are required to keep their public deficits to below 3% of GDP, but some are struggling to do so.

Portugal’s public deficit shot up into the double digits during the global economic crisis, and despite an international bailout it had difficulty bringing it back down to 4.4% in 2015.

Portugal’s economy expanded by 1.4% in 2016, the national statistics institute said in February, after growing by 1.6% the previous year on the back of stronger exports and private consumption.

Here is the full piece, here is a useful Bloomberg piece on Portugal.  Furthermore, by one estimate:

Greek gov’t makes a 6.8%/GDP fiscal adjustment in a single year, without any decline in country’s GDP.

You can quibble over those numbers, and yes I do agree this is bad and also not sustainable, but still people this is not exactly the Keynesian model at work.

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