why debtors like the IMF or the EU demand austerity measures when austerity may cause economic downturns like Greece?
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**CREDITORS** not debtors. The IMF and EU are creditors. Greece was the debtor.
As for why, it’s simple: The current spending is in excess of the government’s revenues. You have a limited number of choices to fix that problem: Raise revenue or cut spending. It’s not a complex set of circumstances.
The implied counter-argument you’re making is that the spending programs are actually producing economic growth which will yield better revenues in the future. This is, regretably, plainly refuted by the facts. According to the Maastricht Treaty, all EU countries must:
Have a consolidated gross debt of no greater than 60% of GDP
Have a budget deficit (new debt each year) of no greater than 3%
Maastricht was signed in 1992, the Euro was rolled out in 1999. Greece *never* held below these thresholds, from 2000 to 2007, the high times before the crash happened. So, from that entire time when Greek spending exceeded the limits set by the treaty they had signed, did Greek GDP grow? Sure. Did it grow by enough to ever conceivably pay back their debt? Absolutely not.
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