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Up Front

Greek Elections: Just the Beginning of More Turmoil for the Eurozone

Once again, Greece is at center stage in the eurozone drama. With Greeks going to the polls on Sunday to elect a new government, the far-left party Syriza is positioned to come in first place and will be given the task of forming a new government. 

With another assistance tranche needed from the troika—the European Commission, the International Monetary Fund and European Central Bank—by late March, and Greek banks low on liquidity, the timing couldn’t be worse—but it is no coincidence. 

The center-right Prime Minister Antonis Samaras, who assumed power after the center-left party was nearly obliterated in the last elections in 2012, knew he couldn’t get the votes needed to support the further economic restructuring needed to keep the troika funds flowing.  

While polls show Syriza just short of garnering sufficient votes to win an outright majority, a top placement in the elections will give them the right to see if they can form a coalition. There is debate as to whether they will be able to do so. But if they can’t it is unlikely other parties will be able to succeed in their place. In this case Greece will face a second round of elections in thirty days, as was the case in 2012.

Europe Needs to Prepare to Accept a Radical, Populist Party

Either way, Europe needs to prepare to accept that Greece’s five-long years of austerity will shepherd into power a radical, populist party with no prior governing experience.  

The platform of a new government led by Syriza head, Alexis Tsipras, is pretty clear—to secure additional debt relief from the rest of Europe and put an end to any further austerity measures.  

There is a hope among some that Tsipras will moderate his populist tone when faced with the task of governing and the looming consequences of a default and a potential Greek exit from the eurozone. And one can expect that European leaders should, in turn, want to give him a little extra breathing room to find a way to thread the needle of domestic politics and the demands of Greece’s creditors.  

But even if one adds a few months to the calendar by political and economic sleights of hand, there can be little optimism that these elections can spell anything but trouble ahead for Greece and for Europe.

The Elections Spell Trouble for Greece and Europe

The last left-leaning party that tried to politically negotiate a package of new assistance, debt relief and fiscal reforms was all but destroyed. It has dropped from nearly 44 percent of the vote when it came to power in 2009 to only polling 4 percent of support ahead of Sunday’s elections. And this was a center-left party. Syriza is a party made up of a coalition of radical left groups. There is no reason to expect that even if he wanted to, Tsipras could deliver on a program that will by necessity have to include further changes to pensions and taxes to meet troika demands on public finance. 

Some analysts have suggested that this is one of the reasons the current prime minister did not bend over backwards to find a solution to avoid the current elections. Let Syriza face the politically impossible tasks of finding further savings in pensions and other government programs to meet budget targets, debt payments and government payrolls. They will not be able to do so, and the economic crisis that results will lead to a loss of political support and a realization among Greeks that there are no populist alternatives to providing more broad-based social welfare support and a faster economic recovery. This would then allow the opportunity for the center to return to power with a stronger mandate. 

Greece is Headed for a Default Without Further Assistance

Whether domestic politics plays out this way is an open question. But the basic assumption—that there are no realistic domestic political configurations left that can carry the country further on the austerity path—is not. Greece will miss its agreed upon targets without further accommodation from the troika, and is headed for a default without further assistance.

How Europe will manage this looming crisis is uncertain. One can expect some accommodation in terms of additional time for the new government to get its act together and appreciate the depth of the fiscal challenges. But how far European leaders are willing to go beyond that in providing further assistance or offering additional debt relief is a big question. 

The need to get agreement across the members of the European Union, and in some cases, parliamentary approval, makes it a tall order, particularly if one is under a tight time frame. And the populist rhetoric that the far-left government can be expected to adopt in its early months combined with no experience in managing international relations or public messaging for foreign audiences, is likely to complicate negotiations further.

Given the enormity of what’s at stake—the economic fallout for Europe if Greece defaults, Greek banks running out of money, a Greek exit becoming a real possibility and the implications for other troubled European countries and the eurozone—Europe needs to move cautiously and do everything it can to buy more time to develop a plan for managing the new political reality in Greece after Sunday’s elections. 

And international markets need to be prepared for another six months of uncertainty that will inevitably follow.

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