The anger, frustration and pain of the Greek people that propelled Syriza to victory in the country’s general election is easy to understand. With a choice between more of the same, with the promise of a glimmer of light at the end of the tunnel, and an immediate end to austerity; halving the debt mountain; easing the living conditions of the poorest; and reinstating many public employees whose jobs were sacrificed to austerity, you’d need to love hair-shirts to vote for continuity. However, many outside Greece believe that the Syriza genie will be unable to grant the wishes it has promised and may lay waste to Greece as any sort of modern economy.
Why would Syriza come to power on a platform of promises that look like wishful thinking for even the most cynical of politicians? Perhaps the answer is a mixture of political naivety and a miscalculation of the importance of Greece to the Eurozone.
What does the Eurozone think of all of this?
The vast majority of Europeans are sympathetic to the plight of the Greek people and nobody likes the austerity measures which have been rolled out across much of the continent. However, people recognise that Greece got itself into its current mess through profligacy; over-generous social security and retirement benefits; a taxation system seen by outsiders as voluntary; corruption and inefficiency. The Greeks spent the money and they fudged their accounts to get into the Euro in the first place, a fact which was at least partially responsible for triggering the European sovereign debt crisis in the first place. There is not much public sympathy in the rest of Europe for the Greeks to have a substantial proportion of their debt paid off at the expense of citizens of the Eurozone, wider EU and IMF. Why should Greece see such largesse when people in Spain, Portugal, Italy, Cyprus and Ireland are expected to pay for the help they received? Why should nations which have managed their finances prudently, but still have had to tighten their belts at home with unpopular cuts cough up for the Greeks? Selling such a move to their own electorates would be a nearly impossible task for EU governments.
The clue may come in an exchange on Italian TV at the weekend where Greek Finance minister, Yanis Varoufakis said that: "The euro is fragile; it's like building a castle of cards, if you take out the Greek card the others will collapse." If Syriza really believes this to be true, then it believes that it has enormous leverage over the other 18 nation states that use the single currency – rather akin to being able to sink the lifeboat that you and your mates find yourself in if they don’t improve your water ration, perhaps. Unfortunately for the Greek people, this would seem to be a huge miscalculation.
No lesser an authority than EC President Jean-Claude Junckers said that if Greece is forced out of the Eurozone, it would need to leave the EU: "there can be no democratic choice against the European treaties. One cannot exit the euro without leaving the EU". What credibility would remain in the Euro if the EU were to allow a member state to renege on deals that it freely entered into with the Eurozone itself, the International Monetary Fund and the ECB? Greece is cocking a snook at the economic reforms that were designed to put its economy on a sustainable footing. Without fiscal probity in its member states (supposedly delivered via the convergence criteria), the Euro will cease to be a viable currency – the Germans, French, Spanish, Italian and Dutch, the largest Eurozone economies, will not tolerate this. The EU GDP (including the UK) is worth roughly €13.5 trillion – the Greek GDP comes in at €182 billion, less than one third the size of the Dutch economy and one fourteenth the size of Germany’s.
What does Greece plan to do?
Greece intends to forsake the final €7.2 billion tranche of bailout money and is likely therefore, to have a funding shortfall of €11 billion by April. It is hoping to attract “bridging loans” to help it stabilise whilst it sorts out a compromise with the Eurozone, but given the fact that it is stating that it wants half of its debt either written-off or, at the least, kicked into the long grass, who would lend cash to Greece? Certainly not the EU, ECB or IMF – the World Bank is hardly likely to be chomping at the bit either. Mr Varoufakis suggested that he could turn elsewhere for funding, citing the USA, China or Russia, but that looks like wishful thinking.
It seems clear that the Euro would withstand a “Grexit”, but that the Greek economy and people would be devastated by it; particularly if it would also force them out of the European Union. The most likely positive scenario is that Syriza is given a rapid education in realpolitik, a mechanism is found to ease austerity and possibly stimulate the Greek economy and that the nation is given longer to pay its debts, possibly at an even further discounted rate. Greece could easily withstand this, but I doubt if Syriza could.