Duncan Weldon reiterated, on Twitter, a point I read Huw Pill of Goldman Sachs make a while ago.
The holdup in negotiations between the Troika and Syriza is described as being over the latter’s inability to support a cut in pensions, an extension of VAT, and, formerly, to reverse measures to rehire civil servants. Measures that are ‘red lines’ for the Greeks.
However, those Syriza are bargaining on behalf of face a calculus that isn’t often teased out properly.
In the aftermath of default, there may be an interregnum when no public sector salaries or pensions are paid in anything at all. Or anything that has any widespread, stable, accepted value. The Greek government would at some point set up its own currency again, and, with luck, may be able to devise an arrangement that brings stability to it, insulated from the continuing pressure on Greek finances. May. And in the meantime?
Rehiring civil servants appeals to those wanting the government to reassert sovereignty, and bolster a statist vision for the Greek economy. But if it triggers something that threatens the government’s ability to service payments to all the other state employees and dependents, would it be such a popular measure?
Likewise, refusing to extend VAT to electricity seems, on the face of it, a stand against a regressive tax. However, what would post-tax-post-Grexit disposable income for public sector and even private sector employees be in the short-term, post default? Perhaps very little indeed. Even after a couple of years of well-executed domestic stabilisation, this number might be lower for those Syriza worry about than under the Troika’s current offer.
This is not to suggest anything about the morality or even economic efficiency of the Troika’s and Syriza’s bargaining stance. Those are separate questions entirely. Except that if you buy the arguments above, then Syriza themselves are not characterising the nature of the options as accurately as they might for their own constituents. But that is not an uncommon crime in modern politics.