Syriza and the question of fiscal austerity in Greece

The Syriza party in Greece has made its opposition to fiscal austerity known in somehwat clear terms, but it has not spelled out clearly how it intends to sustain anti-austerity policies in the short or medium run. If Mr. Tsipras wins the election and decides to follow anti-austerity policies, chances are that credit rating agencies will downgrade Greek debt to junk status again. In such a scenario, it will become prohibitively costly for the Greek government to borrow and sustain a deficit. So, unless Mr. Tsipras can give Greeks the assurance that the Greek government can keep borrowing at affordable rates, how does he intend to implement anti-austerity measures ? Once the treasury bond market starts charging exorbitant interest rates on government bonds, he may be forced to increase tax rates a lot to meet the government expenditure levels he wants. This can further exacerbate his problem by possibly deepending the recession. The existing bailout agreement imposes a certain level of austerity, but Mr. Tsipras needs to state his arguments as to how he intends to guarantee that an even more severe form of austerity is not thrust on the Greeks in the short and medium run by announcing an end to austerity measures. In other words, wanting to end fiscal austerity and actually being able to end fiscal austerity are two different things. It is not clear if Mr. Tsipras and the Syriza party have thought this aspect through. As for the issues of Greek sovereignty and Greek economic independence, the heat of election-time politics may not be the best atmosphere in which to decide the right framework for these things.

by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )