all countries (and for the whole euro area) in 2013 than it was during the peak of the crisis, except in Greece, which is an outlier.

**Table 4: Relationship between Employment and GDP across GIPS**

|||**2000‐20**<br>|**14 Period**<br>|||**2009‐20**<br>|**14 Period**<br>|<br>|
|---|---|---|---|---|---|---|---|---|
|Dep. Var:|GRC_<br>Empl.|IRE_<br>Empl.|PRT_<br>Empl.|ESP_<br>Empl.|GRC_<br>Empl.|IRE_<br>Empl.|PRT_<br>Empl.|ESP_<br>Empl.|
|GRC_Gdp|0.54***<br>(0.00)||||0.68***<br>(0.00)||||
|IRE_Gdp||0.61***<br>(0.00)||||0.065<br>(0.56)|||
|PRT_Gdp|||0.40***||||1.02***||
||||(0.00)||||(0.00)||
|ESP_Gdp||||0.92***||||0.93***|
|||||(0.00)||||(0.00)|
|2009‐14|‐0.01|‐0.08***|‐0.08***|‐0.07***|||||
||(0.31)|(0.00)|(0.00)|(0.00)|||||
|Constant|2.54***|1.15***|4.29***|‐1.53***|0.98*|6.86***|‐2.42**|‐1.73|
||(0.00)|(0.00)|(0.00)|(0.00)|(0.09)|(0.00)|(0.03)|(0.20)|
|# of obs.|56|60|60|60|24|24|24|24|
|R‐squared|<br>0.84|0.86|0.76|0.84|0.84|0.56|0.65|0.42|
|Prob>F|0.00|0.00|0.00|0.00|0.00|0.01|0.00|0.00|

Simple OLS model is used. Robust p‐values are shown in parentheses, and significance at the 1% (***), 5% (**), and 10% (*) levels are indicated. GDP : log of quarterly GDP, chain linked values (2010), million Euro, Eurostat._Empl. : log of quarterly total employment, thousands of people, Eurostat. 2009‐14: dummy for the years in 2009‐2014 period

# **_Part B....and the policy packages that accompanied this growth pattern_**

**_Lesson 3. “Expansionary” fiscal consolidations are not so common after all; Keynesian effects of fiscal consolidation are very much alive...(and sometimes large)._**

_<u>The fiscal debates governing the impact of fiscal consolidation on growth have concluded that Keynesian multipliers are larger than previously thought and that conditions that would have strengthened the risk</u> ‐ ‐_ _<u>reducing and wealth enhancing effects of pro cyclical consolidation (non Keynesian effects) were not strong. Fiscal restraint should be moderated when private sector led aggregate demand revival is unlikely; complementary policies are needed to support output revival during periods of fiscal restraint.</u>_ _<u>Anti‐cyclical fiscal policy turns procyclical for GIPS.</u>_ At the start of the financial crisis, in 2009, all four countries undertook expansionary fiscal policy. The general government deficit to GDP ratio jumped dramatically in 2009 –ranging from just over 15% in Greece to just under 10% in Portugal, reflecting a jump in expenditures, a large decline in GDP, and a fall in revenues to GDP. Table 5a below shows that the budget deficit (and particularly the primary balance, Table 5b) deteriorated substantially for GIPS (8.5, 14.1, 6.8 and 13 percentage points of GDP respectively for GIPS), Ireland and Spain showing the worst deterioration during 2007‐09, though both had surpluses in 2007. From 2009‐14 (except for the case of Ireland, where the deficit rose above 30% of GDP in 2010 due to bank recapitalization expenditures), deficits have been falling. The total adjustment during 2009‐14 was 11.6pp of GDP for Greece,<sup>27</sup> 10pp for Ireland (not including recapitalization of banks; including it makes the adjustment from 2010, 28.4 pp), 2.6pp for Portugal (which had an increase in 2014) and 5.1 pp for Spain. Greece had a large adjustment and the most front‐loaded one, while Spain had a relatively slower one. Ireland’s adjustment on this measure was comparably large, but less front‐loaded; also its large consolidation between 2011‐2012

> 27 The deficit fell 8.8pp between 2013 and 2014.

15