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EU and euro are not the same, as for the price of bottled water inflation is to blame (which in principle austerity is trying to fight), and you are forgetting that salaries have proportionally increased in the public sector (for Spain and Italy in the private sector too).
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No, is not inflation, is the value of their currency. (Lira I think?), It is like how Americans visit Japan and say "everything is cheap!" because Dollar holds > value than Yen.
So if Greek economy is getting weak, is currency falls, and people will buy greek goods more. The problem is now you are straddled on to a super currency that worth more than the dollar and slightly less than British pounds, your currency cannot depreciate by either design or market force.
Now you are in trouble. You can't just all blame "public sector" for this, especially since public sector also provide services.