In life, there are just some things one cannot resolve simply by listening to Taylor Swift’s “Shake It Off”. For the EU, the economic headache conjured by the election of a radical left-wing party, Syriza, is one of those things.
Demanding an end to Greece’s painful austerity measures, threatening renewed turmoil in global markets and throwing the country’s continued membership in the eurozone into question; Syriza arguably has the potential to shape Europe’s democratic destiny. Jeroen Dijsselbloem, head of the eurozone finance ministers’ group (the Eurogroup), said after a meeting of the group in Brussels that it congratulated the new Greek government on its electoral success and looked forward to working with it. What he was really thinking beneath his veneer of decorum was, “YOU’VE GOT NO FANS!”
However, it would appear that they do have fans. The party’s popularity exploded after the collapse of Greece’s economy in 2010 and onerous terms were attached to the country’s bailout by the “Troika” of the European Union, the European Central Bank and the International Monetary Fund. Led by 40 year-old Alexis Tsipras, the anti-austerity crusader is facing the challenge of turning around the country’s fortunes and pulling its people out of economic hardship. Syriza wants to reverse cuts in public services and increase salaries and pensions again. It wants to write off a large chunk of Greece’s huge public debt, most of which it now owes to other governments in the eurozone. The challenge of debt repayment will be at the top of the new Syriza-led government’s agenda.
So, what are the macro-economic and political implications of all this within the EU? Syriza says it wants Greece to stay in the euro – as do the traditional mainstream parties in Greece. Germany’s Chancellor Angela Merkel and other EU leaders have staked much credibility – and spent billions – on keeping Greece in. But there are fears of a crisis of confidence in the Greek economy. In the worst-case scenario there could be a run on the banks, with Greeks trying to get their savings out of the country.
Cyprus suffered such a crisis in 2012 and had to be bailed out. The risk is that the Syriza-led government could refuse to repay the €17bn of debt due in 2015, triggering a default and exodus of investors. The ECB might then refuse another bailout, putting impossible pressure on the Greek central bank to shore up domestic banks. In such a crisis the only solution might be for Greece to leave the euro. Many analysts agree that a disorderly exit would be catastrophic for Greece, fuelling inflation and intensifying hardship as imports would rocket in price. Syriza, however, believes it has a strong bargaining position because the Troika will be even more fearful of the knock-on economic and political effects of a Greece exit from the euro. Sounds like a messy break up – an ‘I’m-keeping-the-dog’ kind of scenario.
However, the victory signals the broader failure of the political strategy that has been employed to implement austerity in the debt-ridden countries of southern Europe – a strategy best described as “cartel politics”. Uh oh. Cartel politics involves the formation of political alliances between the ruling centrist parties to implement austerity. Just as competing firms sometimes agree to fix prices or production levels, competing political parties agree to put their ideological differences aside to cling to power together in spite of the huge unpopularity of the policies they put in place. Syriza is the first challenger to break the Greek political cartel. Greece may be a special case because of the extent of its economic collapse, but other movements elsewhere are also looming on the horizon.
The big winner here is Russia (and Mr. Abramovich, of course – WEMBLEY!). The devolution of the euro zone and the weakening of the European Union have been high on Russian President Vladimir Putin’s to-do list for the better part of a decade. Now it could happen without his having to get his hands dirty. However, the question remains, can the EU afford to rinse their hands clean of Greece?
By Garry Caprani