New statistics out of Greece show that austerity shrunk the economy more than expected last year. GDP in Greece fell 6.8% in 2011, and a slightly faster 7% in the fourth quarter. The country is in a fifth straight year of recession, approaching a full-on depression.
European leaders are still trying to impose more austerity, but some Eurozone finance ministers may be trying to force a default and exit from the euro.

The conservative theories about starving public spending as a way to jump-start private investment have been proven completely wrong by this test case. Austerity during a fragile recovery is destroying Britain. As Brad DeLong writes, if there’s any country where this myth of expansionary austerity should have worked, it was Britain. But it’s not working at all.

Maybe we need a “Ya Think?” of the day, going to the article that shows the best grasp of the obvious. If so, the article with the headline In Greece, fears that austerity is killing the economy would win.

Austerity simply doesn’t work in the midst of a recession. It certainly doesn’t help bring back the economy, and it can make deficits larger, because revenues collapse when austerity creates a deeper recession or depression. Yet we still see policy makers and editorials urging the pain of austerity on others.

Euro nations are facing a tough economic year in 2012, driven by Euro leaders’ insistence on austerity programs that are depressing their economies but not solving their debt problems. A broad recession seems likely.

We know how this movie will end. “The boom, not the slump, is the right time for austerity at the Treasury,” John Maynard Keynes said in 1937, and the words are no less true today. The last few years in economic policy seem to be in one respect a consistent effort to deny Keynes, which happens to also deny reality. And the failures of austerity which can be seen around the globe, particularly in Europe, only serve to reinvigorate Keynes’ central theories. Cutting government when government can provide the only source of demand only hurts the economy further, and it often increases the deficit, defeating the initial purpose.

The Eurozone deal laid bare the fact that national sovereignty in Europe is a thing of the past.

But if that was that price paid for a stronger Europe, a safe currency union and a stronger economy, maybe we could have a reasonable argument about the costs and benefits. But the countries on the periphery, like Italy, Spain, Portugal and Greece, who gave up the ability for their governments to make decisions in the interests of the people they represent, in favor of unelected bureaucrats led by the nose of the markets, don’t even get the exchange of greater economic opportunity.

So, you may have noticed that the November jobs report from the Bureau of Labor Statistics is out today (via CNN): “Hiring accelerated in November, and the unemployment rate unexpectedly plummeted to its lowest rate in nearly three years.”

We have a better sense of the situation in Europe, or at least the game being played by Angela Merkel and the European Central Bank, in tandem. Merkel and the ECB, before acquiescing to any scheme involving Eurobonds or running the printing presses, want to tighten fiscal integration among Eurozone countries, with the attendant loss of national sovereignty and real penalties for breaking fiscal guidelines.

As the Euro crisis remains unsolved, Europe is slipping into recession. The elites’ prescription for this, sadly, is more austerity. All we’re hearing are trial balloons about the IMF rescuing Italy, which have since been shot down. But that would be the ECB funding the IMF, in all likelihood, which it hasn’t agreed to do.