Greece in 2015: Assessing the ‘Syriza’ Political Risk

Only very lately have the international media begun to pay attention to the huge political risk that Syriza’s rise to power in Greece could entail for the country and, possibly, for Eurozone itself. A month ago, I emphasized that the government’s target to secure three-fifths of the parliamentary vote in the election of the President of the Republic, and consequently avoiding parliamentary elections, was unattainable and would put Syriza even closer to winning the coming parliamentary elections.[1] The common mistake that most analysts outside the country used to make regarding Greece was to assume that political players are more or less rational, and serious misjudgments and miscalculations are almost impossible. So, the majority of them seem to believe that Syriza will finally transform itself into a social democratic, systemic party or, having recognized the serious political risk the party’s rise poses, the majority will vote against Syriza and reverse its current 4-5 percent lead in the polls.

One should not underestimate the mental depression suffered by many Greeks during the past five years of economic depression and its impact on the rationality and the measured judgment of voters, nor the impact of misinformation coming from populist media dominated by special interests keen to see the return of the drachma and an end to their financial obligations. So, the story will likely play out as follows:

Syriza will win and the party’s leader, Alexis Tsipras—with his translator—will travel to Germany to see German Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble. He will return to Athens empty-handed and left with two options: First, he wears a tie, puts the blame on the previous government for the current mess and tells people that the domestic financial system is at serious risk. He will shape a coalition government and sign a new agreement with the troika declaring that he will keep on fighting the creditors until they leave the country. In this scenario, he commits political suicide hoping that voters will forget if the economy performs better in the next few years. In any case, at least in the short-term, angry voters will turn in huge numbers to the Golden Down or other extreme parties. This is exactly the type of fantasy that the creditors are willing to believe in as it ends happily for them.

The second option is that he gets back to Greece and calls for a referendum asking voters to decide for him what to do. Scared voters, then, will say that Greece should stay in the euro. But, come the end of March, the economy could again be in very bad shape and in need of more loans with old and new conditionalities. The program that he would have to agree with the creditors would be even worse and significantly reduce Syriza’s popularity in the opinion polls. In this case, he may tell the people that negotiations have failed and the Germans just want to kick Greece out of Europe. For those believing that Europe is this time immune from the Greek mess, it should be remembered that in 2016, the financial needs of the Italian government will be 24.4 percent of GDP, 19.4 percent for Spain, 17.8 percent for Portugal, and 17.4 percent for France.[2] So, the troubles for the eurozone are far from over.

Now, this article might be perceived as an attack on Syriza. Well, not exactly. Syriza is a consequence of the depression and of the serious flaws of the type of austerity policies implemented both by a stubborn and inflexible troika and an unreformed, incompetent political system in Greece.[3] The current government will possibly pay the price for lacking any sense of meritocracy, not because it (partly) implemented the cursed memorandum of the creditors. The product market is still oligarchic and young entrepreneurs with aspirations cannot find work and make a life for themselves. The political system bears structural and architectonic institutional defects such as the supermajority the parliament needs to elect a president with no power whatsoever, and the laughable electoral law that gives to the party that comes first in  the elections—even if just by one vote—a bonus of 50 seats in the 300-seat parliament. Yes, the oligarchic class attached to the political system continues to ruin the country. Yes, the troika has done very little  to open the markets to free, healthy and transparent competition to give real opportunities to a new middle class which might otherwise assume key economic and political positions. Instead, it insisted on an internal devaluation (as if the only problem was the supposed sky-high wages in the private sector), kicking the can far down the road and leading the government to accept heavy taxation on the productive economy and sharp cuts in wages.[4]

So, Syriza is right to say that the government has to go as it has led the country into a terrible mess. But when it comes to Syriza’s manifesto, its policy proposals are not simply demagogic, contradictory and superficial. They are hilarious. Even the idea that they will be able to negotiate a new debt haircut is rather unrealistic as the debt is neither unsustainable after the PSI-plus, nor are the creditors going to accept any new haircut if the government will not first implement the existing conditionality program already agreed, which includes privatizations, primary fiscal surpluses and pension reforms.[5]

On this matter, in particular, Syriza says that it will eliminate the primary budget surplus and cease or reverse the privatization efforts of the Samaras government, the cost of which for 2015 alone would be around 8 billion euros. Meanwhile, bond maturities in 2015 will reach almost 25 billion euros. Since most of the maturities are held by state entities, one should not discount the possibility of either a violent “Grexit” from the euro or, conversely, a long transition to some kind of normality that will unfortunately kill any hope of an imminent “Grecovery.” In addition, it will not only make the pain worse for Greeks but will also inaugurate a new vicious cycle of borrowing just to pay back loans. Whatever may come to pass, 2015 promises to be a turbulent period for Greece and the eurozone. Unless Germany, that is, does ”whatever it takes” to avert Grexit and save Greece and the eurozone itself.

[1] https://www.brookings.edu/blogs/up-front/posts/2014/12/02-greece-economic-recovery-pelagidis

[2] IMF, Fiscal monitor, October 2014.

[3] See T. Pelagidis and M. Mitsopoulos, Greece. From Exit to Recovery?, Washington DC, Brookings Press

[4] See T. Pelagidis & M. Mitsopoulos, Greece. From Exit to Recovery?, Washington DC, Brookings Publ.

[5] See http://www.freegreece.info/Greece_Huge_Competitive_Advantage_AmCham_20141218.pdf