Lost output from 2008 through 2011 alone averages nearly 8 percent of GDP across the major economies. In some cases, such as Greece and Ireland, the losses are multiples steeper. But the drop in state tax revenues that comes with the crisis is perhaps even more significant because it compounds the loss in GDP. Both GDP loss and lost revenue end up being reflected in, first, the immediate budget deficit, and second, in the increase in government debt needed to plug the shortfall. As the so-called automatic stabilizers kick in, transfers such as unemployment benefits going up at the same time that revenues decrease, the public sector expands its budget as the private sector shrinks. Add to this the discretionary stimulus added by these countries to avoid even further collapses in GDP and revenue, and the net result is the most immediate mechanism for the transformation of bank debt into state debt. Again, according to the IMF, of the near 40 percent average increase in debt across the OECD countries expected by 2015, half has been generated simply replacing lost revenues when tax receipts from the financial sector collapsed. To put it bluntly, the state plugged a gap and stopped a financial collapse. It did not dig a fiscal ditch through profligate spending.

Mark Blyth, Austerity, loc. 139