Tuesday, January 27, 2015

Greece’s Warning to the Rest of Europe

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Perhaps the most shocking thing about Sunday’s election in Greece, which saw the left-wing Syriza Party emerge with the largest share of seats in parliament, was that something like this took so long to happen. After five years of austerity policies that have plunged much of the euro zone into a deep and grinding recession, parties on the far left and far right have been gaining popularity from the Atlantic to the Adriatic. With public anger rising, it was only a matter of time before one of them won enough votes to take power, and now it has happened. Syriza won a hundred and forty-nine seats in Greece’s parliament, just two short of a majority. On Monday, the party’s forty-year-old leader, Alexis Tsipras, was sworn in as the head of a coalition government that also includes a small right-wing nationalist party.
During the election campaign, Tsipras promised to reverse budget-cutting measures and to renegotiate Greece’s huge debts, which, even now, after two bailouts orchestrated jointly by the European Union and the International Monetary Fund, come to about a hundred and seventy-five per cent of G.D.P. On Sunday night, after the election result became clear, Tsipras hailed what he described as a historic mandate for change. “Greece will now move ahead with hope and reach out to Europe, and Europe is going to change,” he told a cheering crowd of supporters. “The verdict is clear. We will bring an end to the vicious circle of austerity.”

What happens next is unclear. As a sovereign government, Tsipras’s administration will have the power to determine its own tax and spending policies. Right now, though, there appears to be little prospect that Greece’s foreign lenders will agree to reduce the country’s debt burden. In Berlin, a spokesman for Angela Merkel said that Germany would work with the new Greek government, but, he added, “We believe Greece has accepted terms that are not off the table after election day.” (Adding to the tension was the fact that Tsipras, in one of his first public acts as prime minister, laid flowers at a firing range where, in 1944, the Nazis executed two hundred Greeks from the Communist resistance movement.)
Many people across Europe are hoping that Tsipras succeeds in ending austerity. Over the past five years, Greece has undergone an economic cataclysm that has seen its G.D.P. shrink by a fifth. One in four people is unemployed, and the child-poverty rate is forty per cent. This isn’t merely a recession; it is Greece’s own Great Depression. Elsewhere in the euro zone things aren’t quite that bad, but they’re still pretty dire, especially in countries on the southern periphery. In Spain, for instance, the unemployment rate is 23.7 per cent, not much lower than the rate in Greece. Throughout the euro zone as a whole, the jobless rate is 11.5 per cent, which is more than twice the rate in the United States.
Syriza’s rise to power indicates the political dangers facing the euro zone as a whole if some way can’t be found to restore prosperity. Economic slumps, if they persist long enough, tend to generate political extremism: Europe’s history in the twentieth century provides blood-stained testimony to that fact. If the slumps are brought on by elected governments seeking to satisfy the demands of external debtors, the dangers only increase, as the Germans, above all people, should know.
This isn’t the nineteen-twenties, of course, but the recent period of austerity policies couldn’t go on indefinitely without generating a populist backlash. Syriza is a protest movement—a coalition of communists, environmentalists, and trade unionists. In the 2007 general election, it got just five per cent of the vote; in 2012, its share of the vote rose to twenty-seven per cent; and on Sunday it got thirty-six per cent of the vote. In other European countries, a similar process is at work. According to some recent opinion polls, Podemos, a Spanish left-wing party that was founded less than a year ago, is now the country’s most popular party. Like Syriza, Podemos draws much of its strength from its opposition to the E.U. and the I.M.F.: last week, its thirty-six-year-old leader, Pablo Iglesias, flew to Athens for a big political rally with Tsipras.
And it isn’t just left-wing parties that are gaining ground. In France, the anti-immigrant National Front is surging, with polls showing that its leader, Marine Le Pen, has far more support than President François Hollande, who is up for reëlection in 2017. In Italy, the conservative Northern League is making a comeback under an assertive new leader, Matteo Salvini, who has coupled opposition to immigration with criticism of the euro. Even in Germany, there are signs of polarization, with far right-wing groups recently staging a series of anti-Islamist rallies. The sight of Tsipras being sworn in will give fresh hope to all of these parties, and can only alarm representatives of more traditional parties that have toed the economic line laid down by Brussels and Berlin.
Is there room for a compromise short of Greece leaving the euro zone, which is something Tsipras says he doesn’t want to happen? Perhaps. The current agreement between Greece and its lenders runs out at the end of February, but the government isn’t due to make any more debt payments until the summer. There is time yet to talk, and there is also some financial leeway. One of the ironies of the situation is that, strictly in financial terms, the two Greek bailouts—one was in 2010, the other in 2012—have proved pretty successful. After slashing spending more or less as demanded by the bailout agreements, the Greek government is now running a primary budget surplus, which means that, setting aside the interest payments on its debts, it is meeting its bills. This is the outcome that austerity policies are supposed to produce.
Shouldn’t Greece be rewarded, then, for its efforts, with a new agreement that allows it to ease up on austerity policies, and that writes off some of its debts? In an article published before the election, Paul De Grauwe, a well-known professor at the London School of Economics who has previously advised the European Commission, pointed out that most international debt crises are eventually resolved through a mixture of austerity policies and debt write-downs. “The unilateral approach that has been taken in the Eurozone in which the debtors have been forced to bear the full weight of the adjustment almost always leads to a revolt of these debtors,” De Grauwe noted. “That is now underway in Greece. It can only be stopped if creditors dare to face this reality.”

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