Hey Greece, read this before you vote today

BRUSSELS, Belgium — In what promises to be a pivotal moment for the global economy, Greeks will go to the polls today, for the second time in two months.

They will choose a new parliament, but in the context of Greece’s intractable debt crisis, the election has evolved into a referendum on the harsh medicine inflicted on the country by its creditors: austerity.

One leading contender, Syriza, vows to push back against the deep fiscal cuts that are making life intolerable for many Greeks. Its opponent: New Democracy, largely promises to stick with austerity. 

More from GlobalPost: Syriza promises a fairy tale ending to the euro crisis 

The stakes are high. A victory for the far left Syriza could mean a quick exit from the euro zone, with potentially dire consequences for Greece.

Still, the vote promises to be close. After five years of recession, Greeks want to keep the euro, but they largely reject austerity, which many blame for the crisis getting worse.

But should they hold out hope? As Greeks head to the polls, is there any evidence that austerity will work? Greece is not the only European economy subjected to slashed budgets and structural reforms. Among the past week’s apocalyptic headlines from Greece, Spain and Italy, is there any indication that the austerity medicine is yielding progress?

Perhaps. But it depends on how progress is defined.

For starters, consider Portugal. It's a sign of Europe’s dire situation that Portugal's 2.2 percent economic decline over 12 months was greeted as good news by the government, media and EU officials.

"The Portuguese are no longer standing on the abyss," Prime Minister Pedro Passos Coelho told business leaders in Lisbon in early June, shortly before the figures were released.

Portugal's economic outlook is still overwhelming grim. Yet according to latest data, its recession looks to be subsiding. The 2.2 percent year-on-year contraction was down from 2.9 percent in the previous quarter. Surging exports were the main reason. They were up 11 percent in the first quarter, despite the slowing European economy.

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Likewise, Belgium looks less dire. Last year, the country appeared to be slipping toward a bailout, after yields on its 10-year bonds rose to 6 percent — close to what the market is demanding from Spain and Italy. Investors were calmed by a government deal in December to cut 11 billion euros ($13.9 billion) from the budget. Bond rates are now down to a modest 3 percent — a sign that creditors are comfortable with the country’s ability to pay its bills, despite still-high debt levels.

The Bank of Belgium raised its growth forecast to 0.6 percent this year. That’s certainly anemic, but growth nevertheless, and higher than the euro-zone average.

Ireland has reported some encouraging numbers too.

The country crept out of recession last year, after a 7.4 percent contraction in 2009-2010. Foreign investment is picking up strongly again. Data from investment monitor fDi Markets showed Ireland attracted 77 percent more projects in 2011 than in 2007 although unemployment is still growing, to 14.8 percent

"Due to the determination and fortitude of the Irish people, we have made significant progress in returning our economy to growth," Prime Minister Enda Kenny told a recent business conference. "Our current account of balance of payments is now positive — Ireland is paying down its debts."

The austerity efforts of Ireland and Portugal where singled out by German Chancellor Angela Merkel on Tuesday, expressing her "great respect" for the efforts of both countries to make their economies more competitive.

Economists however are skeptical whether any green shoots that may be emerging can be attributed to belt-tightening demanded by Berlin.

"I wouldn't ascribe the progress in Ireland to the austerity measures," contends Mattias Erlandsson, head of international and financial analysis at Sweden's National Institute of Economic Research. "You could say this happened despite austerity, rather than because of austerity."

The three Baltic nations of Estonia, Latvia and Lithuania are the most striking cases of recovery in Europe's crisis.

Of the three, only Estonia is in the euro zone, but the others have their currencies pegged closely to the euro and all three applied stringent spending cuts when the financial crisis hit them hard in 2008.

More from GlobalPost: Yes they use the euro. And the economy is booming. 

After double-digit economic shrinkage in 2009, the Baltic trio bounced back to become the European Union's fastest growing economies last year. Despite slowing this year the recovery is forecast to continue with comparatively robust growth of over 3.5 percent through 2013.

The Lithuanians and Letts do it, but the general view is that the Baltics' combination of low debt, low taxes, small open economies and readiness to accept sacrifices for the good of their recently independent nations, makes it hard for others to follow their recovery recipes.

Austerity supporters say there are plenty of other examples where countries have cut their way to growth: Britain in the 1980s, Sweden, Germany and Canada in the 1990s, but none of those cases were afflicted with the euro zone's perfect storm of economic woe and political inflexibility.

"The [debt-ridden] euro-zone countries, they are locked into an overvalued currency, and all their trading partners are going through a recession," says Raoul Ruparel, head of economic research at Open Europe, a eurosceptic think tank.

"This austerity adjustment can work in some economies … when you have a single economy that has the ability to make the adjustments and then take advantage of the export growth, but if you're trying to do it in a whole section of the euro zone, I'm not sure it can be as effective," he said in a telephone interview from London.

Passos Coelho, the Portuguese prime minister, says the austerity measures coupled with reforms to liberalize the labor market and counter a chronic lack of competitiveness are "without doubt" the most important changes to the economy in 50 years.

Unemployment however is at record levels of over 15 percent and rising, and the number of firms going bust last year rose 50 percent to almost 33,000. Even supporters of the center-right government warn optimism is premature.

"It's a bit early for us to have any confidence in the data, but there are some positive signs," says Joao Duque, dean of the School of Economics and Management at Lisbon Technical University. "We have to be very careful, unemployment is going up, investment is not showing any signs of growing. The budget deficit isn't falling as much as it should because the measures are having a negative impact on employment" — crimping tax revenues and adding to the government’s social safety net expenditures.

The recent surge in exports is encouraging, reflecting an entrepreneurial spark among Portuguese businesses forced to seek new buyers as domestic and traditional European markets stagnate. Sales to China in the first four months of this year rose 67 percent compared to the same period in 2011.

"The contraction of the internal market is forcing Portuguese manufacturers to look abroad," says Duque. "The problem is, if Europe starts to contract more and affects the rest of the world economy, the Portuguese will be brought down like all the rest."