Three Consequences of Syriza’s Victory
1.The belief that the broader repercussions of a Greek
exit from the eurozone can be contained will make a Greek exit from the
euro more likely, not less.
2.Ultimately, Wolfgang Schauble poses a greater threat to the eurozone than Alexis Tsipras.
3.This is a make or break moment for Europe’s populists.
Yesterday, Syriza, and its leader Alexis Tsipras, won a clear
victory in the Greek elections and today formed a coalition government
with the small right-wing party Independent Greeks, which is also
anti-austerity and anti-bailout. Tsipras has a clear mandate to
renegotiate Greek debt and its relationship with the European Central
Bank (ECB). Much will be written in the coming weeks on the economic
issues involved in the negotiations (for a very thoughtful post
on that, read my colleague Doug Elliott). Here are three initial
thoughts on the political dimension and consequences for the future of
the eurozone.- The belief that the broader repercussions of a Greek
exit from the eurozone can be contained will make a Greek exit from the
euro more likely, not less.
According to media reports, the German government believes that the eurozone could cope with a Greek exit from the eurozone much better than in 2012. Most analysts seem to agree. If the risk of contagion has decreased significantly (and it is hard to know for sure), it could paradoxically increase the risk of a Greek exit. The reason is simple—the specter of Armageddon made everyone cautious in 2012. Greek voters took fright. The ECB would not have pushed Greece to the brink even if Syriza won. If today, the ECB and Germany believe that the consequences of a Greek crisis can be contained, they will be less inclined to make costly concessions. Meanwhile, the Syriza government may feel that it can weather the storm of instability. Tsipras knows that he was elected because voters believe he is genuinely different. He is smart and is capable of adjusting his tactics based on the circumstances. But, I very much doubt he will give up on the core vision that got him elected just to fit in. Exit from the eurozone remains unlikely, not least because Germany is probably still unwilling to run the experiment despite what it says about contagion (after all, before Lehman Brothers was allowed to fail, the U.S. government believed it could be contained), but they could go very close to the brink, and the ECB may well deploy some of its heavy artillery, including choking off liquidity to Greek banks. - Ultimately, Wolfgang Schauble poses a greater threat to the eurozone than Alexis Tsipras.
In the coming weeks, Alexis Tsipras will be identified as the cause of the eurozone’s troubles. However, for five years, Wolfgang Schauble, the German Finance Minister (and with the full support of Chancellor Merkel), has imposed German economic orthodoxy on the eurozone—including austerity, structural reform in the periphery (although not in his own country), support for a contractionary monetary policy and the nationalization of banking debt. The southern countries elected mainstream parties on a platform of changing this approach and he gave them virtually nothing. One by one, they are being discredited and populist hardline parties are benefiting—Syriza, Podemos in Spain, Sinn Féin in Ireland, and Front Nationale in France. In the weeks to come, the German government will protest the irresponsibility of Syriza, but it is important to remember that they trampled over better partners when they had the chance. - This is a make or break moment for Europe’s populists.
Syriza is the first genuinely populist party to be elected into office in the eurozone. The difference between populists and the mainstream left parties is not that they oppose austerity; it is that they say they will unilaterally break with Germany if they don’t give them what they want. If Syriza wins major concessions that mainstream parties could not, it will provide a blueprint for other populists throughout the periphery. Indeed, during the campaign, Tsipras said, "January 25 is a new beginning, a victory by Syriza will be followed by Podemos in Spain, and next year, Sinn Féin in Ireland." On the other hand, if Syriza is forced to back down and accept Germany’s way, just as Hollande, Renzi and others have before him, it will be a major blow to other populist parties.
For its part, governments in the eurozone south will be torn on how to respond to Syriza. On the one hand, they want what it wants—debt relief, an end to austerity and a growth agenda. On the other hand, they don’t want to send the message that the only way to get this is to vote them out in favor of the populists. As journalist Pat Leahy has noted, they have also spent years insisting that they got the best deal possible and that austerity was a necessary evil; a Syriza triumph at the negotiating table would badly undermine that position. Again, their preferred outcome would be an inclusive and comprehensive settlement that they could claim credit for, thus pulling the rug from underneath their own populists.
