Conclusion

  Greece has no ability to pay its €14.5 billion debt due in mid March without bail-out. And the euro zone is not willing to offer bail-out unless Greece agrees to take austerity package. So actually Greece policy makers have no choice but to agree the austerity requirement. There is no need to talk about whether Greece should take austerity measures as it has been approved by the parliament. In this post, I will discuss the impact of austerity.

  Austerity package  contains two parts: cutting spending and raising tax. Then what bad effects could be brought by carrying out austerity policy?

  In the social aspect, people will suffer a harder life when the government service and welfare are no longer at the same level as before. This pain cannot be avoided but I think that the pain it takes can be partly relieved and transferred. For example, government should solve its own corruption problem. By doing the government expenditure is reduced and people may be more willing to pay the tax because taxpayers' money is being  used more effectively. Also I suggest that the rising tax should mostly come from the rich people. Because poor people suffer most from lower level of public service. Rich people should take their responsibility and make some sacrifice as well.

  In the economic aspect, many people argue that slashing in budget and higher tax rate will result in diminishing demand which may lead to a recession.  

  However, some people do believe austerity will do some good for the future of a country's economy.

  According to Alesina and Ardagana (2009, Large Changes in Fiscal Policy), countries, which reduced deficit mainly by cutting spending rather than raising taxation, normally experienced  an above average GDP growth in the following few years after they took austerity measures.

  Unfortunately, this past evidence may not be a good guideline for Greece. The Boost of GDP in those countries is mainly due to the rapid growth in export. The increase of export actually benefit from the depreciation of domestic currency and the cheaper labor force due to the lower minimum wages. Obviously, Greece cannot control the price of euro, as a result, although the labor cost may become lower, it won't   dramatically raise the competitiveness of Greece products. Also the most important thing is that Greece economy does not heavily rely on the export. For some more detail, export only accounted for 22% of GDP in 2010, while import account for 30%. Therefore though the export may increase by certain amount in Greece after fiscal tightening, compared with the 140% percent debt Greece now own, there is no chance it can find its way out of debt simply by the increase in export.

   Is austerity just pain without gain? I think there is something that worth the sacrifice. It's a "signal effect": through taking austerity measure that Greece government and Greek people is showing that they are trying to make an effort in avoiding default and repaying debt; What's more, they are willing to pay for the mistake they have made. Without doubt this "signal effect" will help build the confidence of foreign investors on Greece. Only in this way, investors will be eager to bail-out, invest in or lend to Greece.  For example, Wen, the primer of China, said in February during his meeting with Merkel, the Chancellor of Germany, China will help the euro zone crisis countries only if they try to help themselves. 
   As a conclusion of all my post about austerity policy in Greece. I'd like to state that austerity policy is the first step Greece must take to help it get out of trouble. Although no one can assure austerity can save Greece from huge debt, by taking this measure and trying to control its bad impact, Greece can survive from this crisis in the foreseeable future.