Sanguinity & Syriza

Everybody and their mother’s managed to offer a view on Syriza’s recent election triumph and in the interest of not being left out, here’s mine:

I am, for the moment, still fairly sanguine. The Troika has reiterated its refusal to consider outright debt forgiveness, but I suspect they will achieve more or less the same thing via extending maturities and reducing rates. The big test will come when Tsipras has to implement the domestic reforms he’s promised. From Reuters:

The government, installed within 48 hours of Sunday’s win, is expected to pursue social welfare policies such as handing out free electricity and food stamps to the poor and cutting heating oil prices, alongside a crackdown on tax evasion.

On the labor front, Tsipras is expected to reverse a cut to the minimum wage and restore collective bargaining agreements abolished under the bailout out deal, as well as instituting a 5-billion-euro plan of incentives for firms to hire workers.

As well as reviewing privatization plans, Syriza officials have also promised to take on business tycoons, though in the run-up to the vote they said little about whether they will implement earlier pledges to slap new taxes on big Greek shipowners.

Tsipras has also promised that he will scrap unpopular crisis-era taxes, prompting critics to question how he will be able to afford his lavish social spending while battling depleting cash coffers and exasperated foreign lenders.

Syriza is also expected to freeze public sector layoffs as demanded under the bailout, and stop an unpopular evaluation process for civil servants.

The party claims a total cost for all this of, “about 11.5 billion euros in the medium term,” while the (now former) Samaras government suggests, “…Syriza’s pledges will cost 17.2 billion euros, triggering an immediate budget crisis, with the deficit soaring to 9 percent of GDP.” Either way, the country can’t afford any of this, and continued access to eurozone stabilization funds will be contingent in some non-trivial way on maintaining policies Tsipras has pledged to reverse and continuing to display some semblance of budget discipline. On the surface then, it doesn’t look like there’s a whole lot of wiggle room, but the entire EU response to the crisis has been to fudge things that look intractable and live to fight another day, and there isn’t a great reason to suspect that will change now.

Tsipras says he doesn’t want to exit the euro, and Greek public opinion supports staying in as well. Merkel is an output of the post-war (both Cold and Second World) pro-European political establishment and as such likely understands the Eurozone as the political project it is rather than the optimal currency area it isn’t. Add the fact that at present Greece leaving the Eurozone would also entail its leaving the EU (though one suspects that, too, could be fudged if necessary), and it seems naive to think the country’s ongoing membership in either would be sacrificed on a purely economic basis.

Luckily, Greece does now actually run a primary budget surplus, so there is in fact some scope for negotiations. The German-led (though let’s not leave, say, the Finns out of this either) austerity-only approach to solving Europe’s problems is massively counterproductive, and yes Greece had an enormous spending problem but no, you cannot exclusively cut your way out of it. At least, not without incurring enormous real human costs. And the presence of a spending problem should not overshadow the structurally systemic issues that have throttled useful economic growth in Greece (to be fair, issues which have only just now even started to be addressed in large part thanks to the conditionality of Troika aid). So if the contours of a deal between Syriza and its country’s creditors allow for increased in social spending coupled with continued structural reform, that is in fact a fairly positive outcome.
Outside Greek borders, center-right politicians like Merkel or Mariano Rajoy have found Syriza’s meteoric rise unsettling because of the perceived boost it gives to populist anti-austerity parties like Spain’s Podemos. But if Tsipras and company are able to actually do what Hollande’s election in France was supposed to do for Europe – that is, chance the continent’s political economic discourse from one of austerity to one of growth (and we can fight over what “growth” entails later), then perhaps the international effect of Syriza’s victory may even be a net positive (this is, admittedly, not at the top of my list of potential outcomes, but I would not discount it entirely). Ultimately, it’s far too early to tell – the man just formed a cabinet today.