He is soon to be the Greek premier. The Independent reports,
A Syriza government would have to rely on taxes but tax revenues are down as people wait to see if taxes will be reduced by the new government. This means that Greece may only have the money – though this is disputed by Syriza leaders – until the end of February to pay state employees and pensions and service the debt.
As a far leftist, we can presume he wants to spend lots of other people’s money. Where can he get it?
1. Greek taxpayers. Greece actually was supposed to run a primary surplus this year, meaning that they would only have to borrow to pay interest on debt, not to fund ordinary spending. But apparently the Greek taxpayers do not see it that way. UPDATE: Tony Yates points out a problem even if you have a primary surplus and decide to blow off the interest on your debt. (pointer from Mark Thoma),
the Greek government does not have the funds to stand behind its own banks. They would be left insolvent by a Greek default [economically, they are already, really]. A run on Greek banks, either prompted by default or the threat of it, could not be stemmed by a credible guarantee of deposits.
2. Non-bank investors willing to invest in Greek bonds. Considering that Tsipras does not sound particularly eager to pay off such investors, they might be a bit shy.
3. Banks willing to invest in Greek bonds, since those bonds carry zero risk (according to capital regulations). Still, I can imagine that bank managers are a tad worried that the regulators who designated sovereign debt as risk-free don’t actually have any money with which to back that up.
4. The European Central Bank, which just announced a big “quantitative easing” program, so it needs stuff to buy. The question is how eager Germany and other European countries are to be Tsipras’ sugar daddies.
Pointers in (1) and (4) from Tyler Cowen. Possible outcomes, in order from highest probability to lowest:
1. Eurocrats devise a new elaborate shell game under which they funnel money from other countries to Tsipras while pretending not to do so, hoping that ordinary voters in those countries will not notice, or that even if people notice they will be powerless to do anything about it.
2. The European central bank goes ahead and buys bonds from Tsipras, because the alternative is scarier.
3. Tsipras ends up implementing austerity, because his wallet is empty.
4. Tsipras ends up printing a new Greek currency, as Greece exits the Euro.
Even if taxes are down, it will still have a primary surplus, so what would be cut is interest/debt, whether negotiated or not, the result of austerity. Those with the problem are their creditors.
Can we just call it “spend less”, rather than “implement austerity”? I’m not sure what “austerity” means at this point. “Spend less” is relatively clear.
“spend less and collect more in taxes”
How about from simply enforcing existing tax laws? Evasion is rampant.
Speaking of a run on Greek banks, why hasn’t it already happened (or has it)? At this point, why would anybody who still has two functioning neurons have any Euros left in a Greek bank (except as cash in a safety deposit box)?
How hard is it for an ordinary Greek citizen to open up a safer foreign bank account and transfer all of his assets there?
I suspect that might be hard enough to discourage most people from doing it.
As far as I know a European citizen can open an account anywhere he wants in Europe without any significant hurdles even if is non-resident (fiscally living in an EU country you’re technically resident in all other EU countries).
And there’s no restriction to capital circulation in EU so I guess they can transfer their cash…
I vote for number 4: Grexit. I make the case here: http://trotskyschildren.blogspot.com/2015/01/election-eve-greece.html
Probably the more relevant question at this point is what does Germany want?
My guess is that they neither want the demise of the EU, nor do they want Greece to set any any example of success. How do you say ‘Syriza’ in Spanish? They want everybody to ‘stick to the plan’, so they’re going to want to make their own kind of example out of Greece, and do it quickly.
So Grexit and New Drachmas and writing off a few billion Euros is probably a price worth paying to save the rest of the system, the idea being that Greece was always a bridge too far anyways. Anyway, it will also help with certain immigration problems related to the Schengen-agreement.
If I’m right, that means Germany plays stubborn, ‘take it or leave it’ hard-ball in the game of chicken, probably surprising Tsipras and company, and fully expecting negotiations to break down quickly.
The sudden Grexit reset will thus arrive sooner than Tsipras expects and be chaotic and quite conspicuously nasty. Even after the initial shocks wear off and the country settles into a new equilibrium, the Greeks are going to learn the real meaning of ‘austerity’ in terms of their new, much more meager, standard of living and having watched half their capable youth flee the country for better prospects abroad.
That will allow politicians in other countries to make a much stronger case to their populations on the futility and folly of voting for their indigenous Syriza equivalents.
That likely would be the best outcome for Greece, short term turmoil that it would rapidly recover from, but the ECB may prefer to extend and pretend and it is largely in their hands as it their credit.
If Greece thinks the best outcome is default and short term turmoil followed by long term rapid recovery from not having to repay debt and ECB restrictions, it can do that just fine without any help from the ECB. It’s only in the ECB’s hands if Greece wants more loans.