Doubtless, the recent victory of the Greek extreme left party, Syriza, on the elections on January 25th, appeared to take a central place in the political life of the EU. Indeed, SYRIZA secured 149 out of the 300 seats, 2 seats short of an absolute majority whereas the conservative and then-ruling New Democracy lost 53 seats, obtaining its worst result ever in terms of seats won. Furthermore, the Social-democratic PASOK, ND’s coalition partner, was reduced to just 13 seats in comparison to 33 in 2012. Thus, the Socio-Democrats failed to 7th place, becoming the last party to surpass the 3% threshold. In addition, the extreme right Golden Dawn lost some support and was reduced by one seat to 17 and became the 3rd political force in Greece thanks to the loss of support of both PASOK and ANEL. The last elections were marked by a slight success for the Communist Party of Greece that won 15 seats or 3 more than it had won in June 2012.
Towards new financial frustrations
After reaching a coalition agreement with ANEL, Alexis Tsipras was sworn in as Prime Minister of Greece on 26 January 2015. As main part of his pre-elections campaign, Tsipras has been rejecting austerity as a main solution to the Greek debt crisis, suggesting eventually not to fulfill the main conditions imposed to Greece by its main creditors, informally known as the ‘Troika’ ( composed of the European Commission, the Member States of the Eurogroup and the European Central Bank). Despite Mr. Tsipras’ statements that Greece will keep the European single currency, he also seems to envisage the dumping of most of the conditions attached to Greece’s bail-outs, ending austerity, reversing cuts in the minimum wage and in public spending, scrapping asset sales and seeking to repudiate much debt. Without surprise, Syriza’s upcoming victory made investors promptly swooning, and resulted in an Athens stock market failure by almost 5% in a single day, bank shares down by even more and Greek 10-year bond yields rising to a new 2014 high of 9.5% (over seven points above those for Italy).
Syriza has been ahead of the ruling New Democracy party of the outgoing prime minister, Antonis Samaras, in the polls for more than 14 months. In spite of recent economic recovery, Greek voters remain understandably enraged that GDP should have shrunk by almost 20% since 2010 and that unemployment is still as high as 26%.
As far as Syriza’s political ideology is concerned, it is important to point out that if is founded on uncertainty, contradiction and at worst reckless populism. On the one hand Mr Tsipras has recanted from his one-time hostility to Greece’s euro membership and toned down his more extravagant promises. On the other hand, Mr. Tsipras is still convinced of his capacity to moderate the conditions imposed by Greece’s creditors in exchange for two successive bail-outs. Regarding this political program, Mr. Tsipras underlines first Greece’s partial economic recovery as well as the primary budget surplus for 2014 (ie, before interest payments). Second, Mr. Tsipras seems to count on a debt acquittal by rest of the euro zone…
Economists often argue that economic growth and a primary may contribute to the repudiation of States’ sovereign debts because they are no longer dependent on capital inflows. However, the Greek economy still requires important structural reforms in order to restore its lost competitiveness. Moreover, the rumors that EU leaders are so rattled by fears of Grexit that they would pay any price to avoid it were true in 2011 and 2012 but are currently losing credibility. The ‘anti-epidemics’ defence mechanisms that the euro zone has since built make Grexit easier to contemplate. Considerable measures have been done to improve the euro’s architecture such as a new bail-out fund, the attribution to the European Central Bank of the role as lender of last resort and the establishment of a banking union. Additionally, most of the bailed-out and peripheral countries are at last growing again, and unemployment is starting to fall.
What could be the consequences of Syriza’s victory? Does a ‘Grexit’ seem more realistic now than in 2011? Without confirming with certainty, economists consider a potential Grexit safer, though perilous and unpredictable. At present, investors are putting their trust in the resilience of unemployment-plagued countries like France, whose president has record levels of unpopularity, or Italy, whose economy has shrunk in constant prices in the first 14 years of this century…
The current economic stagnation all over the euro zone points to the deeper reason for caution since the continuing dismal economic performance could now pose a considerable political risk to the single currency. In the short run, so long as creditor countries insist only on budgetary rectitude and reject all proposals for further monetary and fiscal stimulus, the situation of the euro zone is less likely to improve as the continent’s leaders have largely failed to push through the structural reforms that could make their economies more competitive. Consequently, both the lack of economic performance and the resulting unemployment bring populist on power not just in Greece.
As the new 2015 approached, a majority of Europe’s leaders assumed that the main phase of the euro crisis was behind them. However, when taking into account that populist parties of left and right that are against the euro, explicitly or not, continue to gain ground in many countries such as Podemos in Spain, we could conclude that the early Greek election prove that this expectations have been premature and less related to the economic and political reality. In spite of the less significant economic recovery, the legacy of the 2008-crisis is still presenting an important challenge for EU leaders and the European Project itself. Record unemployment all over Southern Europe and in France, insufficient standard of live in Eastern Europe, lack of structural reforms and of capital inflows-the justifications to the rise of protectionism and populist movements are more than few. In that sense, an eventual ‘Grexit’ could have even more negative consequences not only for Greece but also for the fragile euro zone defense mechanisms. Hopefully, such an apocalyptic echo might enlighten the political elites in Athens, Berlin and Brussels and open their minds to new horizons.