Here is one very effective understatement:
The two sides were “quite far apart” over projected cuts of 25 per cent in private sector wages, 35 per cent in supplementary pensions and the immediate closure of about 100 state-controlled organisations with thousands of job losses, a Greek official said.
Coase may yet kick in, but it looks pretty tough to me. Here is a good post on what it means if there is no public lender haircut.
How do they have any control over private sector wages?
They can change the minimum wage.
Is that realistically binding, even in Greece?
More likely the government chooses which side to back in union-business wage negotiations.
Remember that the United States itself once froze wages, under Nixon, without any particularly elaborate state apparatus that it doesn’t still have today (namely, a centralized labor board).
Simply – pass a law saying “the value of private sector wages is reduced in 25% form the contracted value”
For one, the government mandates that employees get 14 monthly wages per year.
Yes, you read that right.
Simply cutting the extra 2 is a ~15% decrease. Then they can obviously change the minimum wage, but that won’t have much effect.
Then they can change the effective wages the employers are paying by decreasing pension contributions, social security contributions, etc.
Then again, none of these things will address the underlying problem that Greece is closer to a Stalinist planned economy than an actual free market. The amount of regulations, licensing, and government meddling in EVERYTHING is simply unbelievable (and is partly responsible for generating the gigantic amounts of corruption in government), and they’ve done very little to address that.
Apropos…after today’s meeting of the three party leaders that support the current government, there was the great “success” that they resisted the troika suggestions to cut the 13th and 14th salaries.
There is absolutely no will for any serious change in Greece.
http://news247.gr/ellada/politiki/nd_petuxame_na_mhn_kopei_o_13os_kai_14os_misthos.1606665.html
Raise taxes on them?
I predict that, in the general spirit of the EU, they will agree to the cuts and then not actually make them. If there are guarantees in the deal, they will claim to have made the cuts, at least when they aren’t speaking Greek.
The only thing going on is the different sides trying to get the others to declare the default everyone knows is coming. CYA time.
Tyler, the chance of Greek politicians rejecting the deal is zero. Publicly they will fiercely oppose it, privately they will agree to whatever Papadimos recommends. I’m too bored to get into specifics but I’ll just say if i’m wrong about this one i will have to seek isolation and meditation as a hermit, since it will be the first time i get a prediction on Greek politics wrong in the last 5 years.
Now, the chances that the PSI negotiations will stall are much higher, but not too high, considering that Papadimos can always legislate whatever deal he wants, since credibility is not a real issue when your plan involves 30 years financing from official creditors.
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