occurred after growth had recovered (Table 3).

**Table 5a: General government net lending** **<u>(+) or net borrowing (‐) as a share of GDP (%)</u>**

||2000|2001|2002|2003|2004|2005|2006|2007|2008|2009|2010|2011|2012|2013|2014|2015|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Greece|‐4.1|‐5.5|‐6.0|‐7.8|‐8.8|‐6.2|‐5.9|‐6.7|‐10.2|‐15.2|‐11.2|‐10.2|‐8.8|‐13.0|‐3.6|‐7.2|
|Ireland|4.9|1.0|‐0.3|0.4|1.3|1.6|2.8|0.3|‐7.0|‐13.8|‐32.3|‐12.6|‐8.0|‐5.7|‐3.8|‐2.3|
|Portugal|‐3.2|‐4.8|‐3.3|‐4.4|‐6.2|‐6.2|‐4.3|‐3.0|‐3.8|‐9.8|‐11.2|‐7.4|‐5.7|‐4.8|‐7.2|‐4.4|
|Spain|‐1.0|‐0.5|‐0.4|‐0.4|0.0|1.2|2.2|2.0|‐4.4|‐11.0|‐9.4|‐9.6|‐10.4|‐6.9|‐5.9|‐5.1|
|EA‐19*|‐0.3|‐2.0|‐2.7|‐3.2|‐3.0|‐2.6|‐1.5|‐0.6|‐2.2|‐6.3|‐6.2|‐4.2|‐3.7|‐3.0|‐2.6|‐2.1|
|EU‐28*|‐|‐|‐2.6|‐3.2|‐2.9|‐2.5|‐1.6|‐0.9|‐2.4|‐6.7|‐6.4|‐4.5|‐4.3|‐3.3|‐3.0|‐2.4|

*: weighted average.

Source: Eurostat.

**Table 5b: General government primary fiscal balance (% of GDP)**

||2000|2001|2002|2003|2004|2005|2006|2007|2008|2009|2010|2011|2012|2013|2014|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Greece|2.8|0.8|‐0.5|‐2.9|‐4.0|‐1.5|‐1.5|‐2.2|‐5.4|‐10.1|‐5.4|‐3.0|‐3.7|‐9.0|0.4|
|Ireland|6.8|2.4|1.0|1.6|2.4|2.6|3.8|1.3|‐5.7|‐11.8|‐29.3|‐9.2|‐3.9|‐1.4|0.2|
|Portugal|‐0.2|‐1.8|‐0.5|‐1.8|‐3.6|‐3.6|‐1.6|‐0.1|‐0.7|‐6.8|‐8.2|‐3.1|‐0.8|0.0|‐2.3|
|Spain|2.1|2.4|2.2|1.9|1.9|2.9|3.8|3.6|‐2.9|‐9.3|‐7.5|‐7.2|‐7.5|‐3.5|‐2.5|
|EA‐19*|3.5|1.6|0.7|0.0|0.1|0.3|1.3|2.2|0.8|‐3.5|‐3.4|‐1.2|‐0.6|‐0.2|0.1|
|EU‐28*|‐|1.8|0.5|‐0.3|‐0.2|0.1|1.0|1.7|0.3|‐4.1|‐3.8|‐1.6|‐1.4|‐0.6|‐0.4|

*: weighted average.

Source: European Commission, Annual macro‐economic database By all measures, the countries undertook substantial fiscal adjustments, but Greece has done the most by some measures as shown in Tables 5c and 5d. Greece’s primary _structural_ budget was actually in better shape than that of IPS in every single year AND the pace of adjustment was faster during 2010‐ 2012. The heavily front‐loaded Greek adjustment, on the heels of the financial crisis induced recession, and tightening monetary policy (the ECB raised its reference rate during this time (Figure 10a)), had all the conditions for a strong negative impact on output. Comparison with the EU and EZ averages shows the much larger adjustment the GIPS adopted Another way to look at the size of the adjustment governments made is to consider actual expenditure decisions (a policy variable), abstracting from the fall in GDP (not a policy instrument). Greece’s performance is striking. In 2010‐2014, real expenditures fell by 35 percent‐ _to a level lower than that in 2000_ . Only if the spike in bank related expenditures in 2010 is included does Ireland match this rate of decline. Without this item, _Ireland’s expenditures saw the lowest decline of the three_ and Spain’s the second highest (‐11.6% and ‐14.4% respectively).<sup>28</sup> In contrast, Portugal had an even lower decline at 8.6%. Greece also had the largest _revenue_ decline since 2009 ‐ another indication that its post‐2009 fiscal adjustment has been very large. Portugal’s deficits continue to be much higher relative to their magnitude in the pre‐crisis period and the government began running arrears in 2014.<sup>29</sup> Finally, despite these adjustments, debt ratios remain elevated.

It is clear that fiscal adjustment of these magnitudes would have large output effects. Slower fiscal adjustment probably partly explains better output out comes in IPS. It is important to note that Greece’s adjustment showed “bumpiness”. A large deterioration is visible in 2013 when the other countries were showing consistent improvements. A more consistent pattern of adjustment in Greece might have been better in terms of raising confidence and reducing the eventual output cost. A slower adjustment would

> 28 If Ireland’s adjustment is taken from the 2010 peak when expenditures rose due to bank recapitalization, it is 36% and Portugal’s is 14.9%.

> 29 They were reduced by end 2014 and rose again in early 2015 (IMF, 2015f).

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