Grexit. The word that was just a whisper has now been spoken out loud. Will Greece, with a debt burden equal to 180% of its GDP, quit the Eurozone and default on its interest repayments now that voters have voted for Alexis Tsipras and his anti-austerity Syriza party last month?
Tsipras was quick to form a coalition government with a party from the other end of the political spectrum, the Right-wing Greek Independents Party, led by populist Panos Kammenos. What brings these two very different leaders together is their total rejection of austerity programmes as a solution to Greek problems. Kammenos is a hyper-nationalist, a fact that makes him unpalatable to most Syriza members. However, Tsipras, who is suspicious of traditional parties that have ruled Greece these past 45 years, has preferred him to the Socialists of Pasok or the Conservatives.
Years of poor governance, corruption and financial profligacy brought Greece to its knees and two successive loan bailouts by the European Union (EU) and the IMF imposed harsh conditions such as massive cuts in public spending, a reduction of public sector employment and large-scale privatisation. As the EU’s largest and most prosperous economy, Germany reluctantly bankrolled a large part of the 109 billion euros that Greece now owes the IMF and EU financial institutions. Further payments to Greece have been suspended until there is greater clarity over Athens’ intentions.
Tsipras had promised to overturn the EU-imposed austerity package introduced by his predecessor Antonio Samaras where massive welfare, salary and pension cuts led to unemployment and poverty. He has promised to jump-start the economy with 12 billion euros of fresh investments and ‘re-negotiate’ the terms of the Greek debt. The underlying threat of default has made markets nervous and sent shivers across Berlin and other pro-austerity capitals. Angela Merkel and other free-market standard bearers of austerity are worried that the contagion might spread, especially to Spain, which is the next large European nation up for election and where anti-austerity sentiment is steadily gaining ground.
For weeks, business leaders and EU heads had warned the Greek electorate of the consequences of a Syriza victory. But voters chose to ignore those warnings. Opinion polls indicate that other EU democracies would follow suit were elections to be held now in France, Italy, Spain or Portugal.
Economist Sylvie Delannoy told me that a Greek exit no longer posed the same problem it did three years ago when the country’s debt crisis first exploded. “If it is a managed exit, it should not cause too many ripples, given the fact that the European Central Bank has taken measures of quantitative easing and that creditor banks have passed extreme stress tests. Yes, repayment of the principal amount of several billion euros is scheduled to start only in 2020. For the moment all Athens is repaying is the interest. But evidently that scenario will change if Greece decides it wants to renegotiate the terms and conditions attached to that debt — if it refuses to respect its commitments or introduce tax or land reforms as stipulated by the troika made up of the EU Commission, the European Central Bank and the IMF.”
But Right-wing commentators and media are already raising the ante. “Syriza’s promises will cost the German economy 20 billion euros,” Bild screamed.
Will Merkel and her supporters take a tough line on Greece and wield the big stick or will Tsipras show himself to be more conciliatory than he has been in his election speeches for a happy denouement of the brewing crisis? The waiting game of cat and mouse has now well and truly begun.
Vaiju Naravane is a commentator on international affairs, broadcaster and publisher based in Paris. The views expressed by the author are personal