The Greek Backlash Against Austerity

Results In The Greek General Election

Over the weekend, Greek anti-austerity party Syriza, lead by firebrand Alexis Tsipras, claimed a resounding victory. Matt Schiavenza contemplates the sizable implications:

Tsipras’ victory presents the troika—a consortium consisting of the European Central Bank, the European Commission, and the International Monetary Fund—with a series of unappetizing options. If the troika gives in and writes down Greek debt, then other, larger countries—such as Spain—will have an incentive to negotiate a similar deal, triggering a major financial headache in Brussels and Frankfurt. If the troika refuses, then Greece is likely to default on its debt obligations this year and be forced to exit the eurozone—a fate that neither Tsipras nor the European leadership say they want.

Either way, the events in Greece signal that Europe’s long, failed experiment with austerity is cracking. In addition to Syriza, anti-austerity parties have grown popular in Spain, where opinion polls show Pablo Iglesias’ Podemos with 20 percent support. And Euroskeptic parties gained heavily in last years’s European parliament elections, particularly Marine Le Pen’s National Front Party, which has campaigned against fiscal austerity in France.

James Forsyth fixates on Syriza’s forming “a coalition with a party that takes just a robust view as it on the need to renegotiate the terms of the Greek bailout, The Independent Greece party”:

Independent Greece and Syriza have little in common other than their view on the bailout, Independent Greece sits in the same group as the Tories in the European Parliament. That Alexis Tsipras has chosen to do a deal with them rather than the leftist Potami who favour a less confrontational approach to the troika is telling. It shows that he has no intention of blinking first in his negations with the IMF, the rest of the European Union, the European Central Bank and the European Commission. ​

George Magnus is unsure how this ends:

Negotiations will start very soon because there are outstanding loan tranches and repayments to be sorted out by 1 March, and larger repayments to the IMF in July and August. Most likely, technical agreements will be reached to extend or reschedule payments due. The crux, however, is that the troika creditors will come face-to-face with a Greek government that is quite different from its predecessors, which included factions and groups whose political interests were almost indistinguishable from those of creditors and of the policies they espoused.

Greece and its creditors could forge some kind of mutually face-saving compromise over the terms of the debt so as to manage debt servicing better, and offer Greece some relief. But it will be much harder to reach agreement regarding the policies of austerity and structural reform, and the more radical changes to living conditions that Syriza has campaigned on.

Daniel V. Speckhard foresees major hurdles:

The need to get agreement across the members of the European Union, and in some cases, parliamentary approval, makes it a tall order, particularly if one is under a tight time frame. And the populist rhetoric that the far-left government can be expected to adopt in its early months combined with no experience in managing international relations or public messaging for foreign audiences, is likely to complicate negotiations further.

Bloomberg View’s editors want the troika to give ground:

Europe’s leaders have to clearly understand the meaning of Sunday’s vote in Greece. Germany, Finland and the EU institutions that have lent Greece money must now negotiate with Tsipras in good faith — as they refused to do with more co-operative governments that preceded his — to soften the destructive economic policies they have imposed. Although this will encourage Syriza-like protest parties in Spain and elsewhere, such is the cost of ignoring the political dangers of Greek austerity for so long.

Yves Smith highly doubts Syriza will get what it wants:

[W]hat happens when Syriza comes to realize that the Troika is deadly serious, which I believe it is? Whether the Eurocrats are right or not, it seems that at least the Fins and the Germans see Greece as disposable. Their leaders believe that throwing it out of the Eurozone or simply taking radical punitive measures if Greece does not do a deal by the summer rollover date will be at most disruptive but not fatal to the Eurozone; indeed, they may believe any short-term [crisis] would be to the Eurozone’s long-term benefit, since making Greece a demonstration case of how costly it is to defy the Troika would serve to cow the rest of the periphery countries.

Hugo Dixon tries to imagine a way forward:

[T]here might be a way of cutting a deal. The snag is that doing so would involve a massive somersault – or what Greeks call a “kolotoumba”. Many of Tsipras’ backers would then accuse him of betraying their cause. It is still far from clear whether he is prepared to do that. But if the Syriza leader is not prepared to compromise, Greece will default and will have to impose capital controls to stop the banks collapsing. If the people then forced the government to backtrack, there would be one final chance to stay in the euro. Otherwise, the drachma would beckon.

Tom Rogan fears Syriza has lost touch with reality:

Syriza’s platform is, in fact, delusional. Alice in Wonderland comes to mind. “If I had a world of my own,” Alice says, “everything would be nonsense.” The Greek voters who brought Syriza to victory are asking for nothing less. After all, what are German taxpayers to make of Syriza’s proposals? Having already spent many billions to save Greece from a fiscal meltdown and preserve its euro-zone access, Germans are now being asked to give up on getting their money paid back. Syriza’s debt-forgiveness plan is fundamentally unserious.

But Dan Hough’s research suggests that Syriza will be more moderate in office:

In terms of Greece’s immediate future, a Syrzia-dominated government is unlikely to live up to the often radical pre-election rhetoric.  Syrzia is likely to take decisions that supporters find very difficult; but it will take them nonetheless.  Whether it gets any credit for them when Greece next goes to the polls is an altogether different matter.

However, Spyros Economides warns that “Greece is entering a period of deep uncertainty”:

Syriza’s victory may indeed turn out to be pyrrhic. It is confronted by the immense task of governing at a time when Greece may be ungovernable, while also facing a potentially divisive internal struggle. International partners have also made it clear that the new Greek government, whatever its makeup, will have to honour the country’s existing agreements and commitments.

If Greece’s international creditors don’t come through with quick concessions, or if radical opposition rears its head against Syriza’s more moderate approach, this could trigger an uncontrollable reaction based on fear of uncertainty. That could lead to an accidental default, which would have disastrous consequences for Greece.

(Photo: A sign is held up stating ‘We start from Greece-We change Europe’ as supporters of Syriza react as exit polls showing their party is set to win the election on January 25, 2015 in Athens, Greece. By Matt Cardy/Getty Images)