A populist election win need not spell disaster for Greece—or for the euro zone,
The economist
EUROPE’S leaders are often accused of having learned nothing from the euro crisis. But if the run-up to Greece’s election on January 25th has proved anything, it is that politicians have become masters in the dark arts of expectation management. Syriza, a far-left party which polls suggest is likely to win, tells voters it will end the era of austerity, while assuring German taxpayers that it seeks no quarrel with them. German officials quietly tell reporters they are prepared to see Greece leave the euro, while professing the opposite in public. Any vaguely relevant remark by a European Union politician is multiply parsed for subtext or double meaning. Greeks may be forgiven for thinking they need a degree in game theory to decide how to vote.
After six years of recession, five under the tutelage of the hated “troika” (the European Commission, the European Central Bank and the IMF), Greece’s future in the euro is again in question. Alexis Tsipras, Syriza’s fiery young leader, promises a panoply of feel-good policies, including tax cuts and a public-sector hiring spree, and a slashing of Greece’s debt load, which stands at over 170% of GDP. But such pledges seem at odds with those made by Greek governments in exchange for the bail-outs that have kept Greece in the single currency. Greek bond yields have spiked, and there are worrying signs of deposit outflows from banks.
Nobody really wants “Grexit”, least of all Greeks: 74% say they want to stick with the euro. An exit would be painful and costly (see Free Exchange). But unlike in 2012, when Syriza narrowly lost an election to the centre-right New Democracy party, the Germans and others hint that this time the euro zone is reasonably well placed to cope with a Greek departure. A bail-out mechanism is in place, Europe’s banks are in better shape and, after most private bondholders accepted a whopping haircut in 2011, over three-quarters of Greek debt is in “official” hands, reducing fears of contagion. Foreign investors are better able to distinguish among euro members. Bond yields outside Greece have remained flat throughout the latest turmoil.
Does this mean the risk posed by Greece is now commensurate with its tiny share (2%) of euro-zone GDP? Sadly not. Grexit would still shatter the illusion that membership of the currency is irreversible. In the medium to long term that would make the euro a riskier proposition, opening the door to speculative attacks on other euro members. Make no mistake, says a senior EU official: Grexit “would be a disaster”. But for it to be avoided, there will need to be compromise on both sides—perhaps more on Greece’s. European officials insist they will countenance no reversal of Greece’s main fiscal and structural reforms, partly for fear of emboldening anti-austerians elsewhere. Nor will they accept another debt write-off. At best Mr Tsipras might win more lenient terms for its repayment, notably a further extension of maturities—which already stretch far into the future.
There are solid grounds for thinking a deal is possible. Since 2012 Mr Tsipras has become more sensible and his Syriza more professional. He has tightened party discipline. And polls suggest Syriza may have to rely on the support of a more moderate party to govern; that could help Mr Tsipras reach agreement. For their part, troika officials are mulling an extension of the bail-out to provide time for talks. Mr Tsipras has clambered to the top of Greek politics by promising a rupture with the old ways, but in the end may sign up to a classic European fudge.
European officials had hoped to avoid a Syriza-led government. But it should be no surprise if a country that has seen a 25% fall in output, unemployment at 26% and over one-third of the population at risk of poverty rejected those who have overseen such misery. The Germans and others have often displayed a tin ear to the suffering caused by the austerity-first policies they have pushed (Mr Tsipras refers to “fiscal waterboarding”). The surprise is that a radical alternative has not emerged before.
What took you so long?
Still, Europe’s establishment is right to worry. The chances of an accident are real. Mr Tsipras must sell a deal to the more militant members of his party, some of whom were never convinced by the euro. Syriza’s leaders are inexperienced negotiators, and their pre-election contacts with some creditors have been slim to non-existent. Worse, the latest phase of Greece’s euro-zone bail-out expires at the end of February, and various bond repayments are due soon afterwards. That leaves little time for Mr Tsipras and his merry band of neophytes to reach an accommodation.
Just as Greece’s treatment within the euro zone was never about Greece alone, today its politics resonates well beyond its borders. Podemos, an anti-austerity outfit that has emerged from nowhere to top the polls in Spain, explicitly allies itself with Syriza; its leader, Pablo Iglesias, frames the Greek election as a tussle between Mr Tsipras and Angela Merkel, Germany’s chancellor. Podemos’s platform is barmy and its leaders, a ragtag of anti-capitalists and Hugo Chávez fans, are not, to put it mildly, ready to govern. But by shaking up a creaky two-party system they may have already performed a valuable service for Spaniards.
One sorry legacy of the euro crisis has been a weakening of the bonds of democratic legitimacy between rulers and ruled. The euro zone has only just begun to grapple with the tensions of a monetary union not backed by a political one. And Mr Tsipras looks more likely to fall back on socialist shibboleths than to tackle Greece’s pernicious clientelism and corruption. But if a Syriza victory gives Greeks the sense that they have at least a small influence on their own destiny, that could go some way to repairing the damage of the past few years. For their part, Europeans might consider themselves lucky that their first serious joust with populism has a chance of avoiding disaster.
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