THE BLOG
01/29/2015 01:30 pm ET Updated Mar 31, 2015

Europe and Greece: Managing Expectations and Driving Reform

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As the euphoria of victory subsides and reality sets in, Greece's new far-left Syriza government confronts the daunting task of trying to strike a balance between the demands of its political base to end austerity and creditors wanting payment. It inherits the same limited options of its predecessor while approaching deadlines add further pressure to talks. As negotiators embark into unchartered territory, ambiguity increasingly dominates the European landscape as a deal could still prove illusive.

During the campaign, Syriza promised to deliver vast social services and simultaneously renegotiate Greece's debt by demanding it be halved and austerity measures ended. Creditors' initial reaction has been firmly negative, particularly in northern Europe. Searching for a middle ground could prove a futile task unless Prime Minister Alexis Tsipras begins to demonstrate fiscal responsibility and the earnest implementation of overdue structural reforms, particularly in the public sector. If progress is made, Greece's creditors would show increased flexibility.

As Tsipras and creditors begin negotiations, a key priority must be avoiding brinksmanship and an immediate collision course. At home, Tsipras will continue to use firm rhetoric to show public confidence. In Europe, he should continue to use the language of moderation and compromise. It is unlikely that any firm agreement will be achieved in the near future. The reality is that each side will muddle through and search for the lowest common denominators as foundations and confidence-building measures for further talks. A gradualist approach could be taken in the form of stealth restructuring. In essence, it amounts to debt restructuring through a series of extensions and interest reductions in order to buy time for longer term negotiations. However, this can only be achieved within a realistic framework whereby the Greek government is still held accountable for debt with reductions but responsible future policies and practices are firmly put in place. Failure to do so will only plant the seeds for further economic ruin and establish a negative precedent for other debtor states in Europe.

Although Tsipras will approach negotiations instilled with a sense of public mandate from Greek voters to end austerity, he must not forget that leaders of European creditor states are also democratically elected. Consequently, they owe a duty of care to their own citizens for fiscal responsibility. Their voters deserve a say in how and where their taxpayer money is spent. After all, they would be responsible for bearing a large portion of any debt cancellation or reduction. In particular, German taxpayers are extra sensitive to this issue after being obliged to pay a unification tax for absorbing East Germany over 20 years ago. Levying a hefty European Union tax, whether directly or indirectly, to bail out debtors would not be easily accepted. German officials were already irritated by the European Central Bank's recent quantitative easing of 60 billion euros.

Despite Syriza's convincing victory, market reaction was relatively calm. For now, Europe has avoided the panic days of mid-2012 when two consecutive Greek elections held all on knife's edge. Ideally, some form of accommodation will be eventually reached. However, should deadlock result and failure materialize, no scenarios can be excluded. Though undesirable, a Greek exit from the eurozone is no longer taboo nor unthinkable. While Europe is now somewhat better prepared than 2012 for Grexit, no firewalls are completely impenetrable and some form of market turmoil will inevitably occur.

INSIDE GREECE

Overall, Greece's electoral outcome was generally expected and essentially a vote against the traditional establishment, austerity and the dismal status quo in Greek society mired in economic stagnation. It serves as a wake-up call and lesson for mainstream centrist parties throughout Europe and the democratic world to avoid complacency, reform from within and deliver results. Failure to do so will only fuel populist movements and make their coming to power a self-fulfilling prophecy.

Although Greece's recent electoral process lasted roughly three weeks, Tsipras was in campaign mode for the past three years as opposition leader. Now the hard work of governing begins. The reality of power replaces the rhetoric of campaigning. He technically led the party which won the most votes, roughly one-third, but in reality it is a coalition of parties as its Greek name implies, Syriza meaning coalition. This united left front is an amalgamation of groups ranging from the center-left to far-left, including Communists and Marxists. Its right-wing, anti-austerity junior partner in government, Independent Greeks, includes hard-core nationalists and advocates an anti-immigration message with considerable racist overtones.

Behind Tsipras' youthful image of a new generation lies a calculated political operator willing to discard allies and befriend opponents to fulfill his agenda. Contrary to his narrative, Tsipras does not represent a complete break with the past. He speaks about rupturing Greece's vicious cycle and then actually fuels it by constantly offering vague promises of old state-centric solutions to society's ills. Such populist rhetoric naturally wins votes and effectively appeals to many left hopeless by the economic crisis. It also reflects a past era Tsipras regularly condemns which was dominated by assertive and persuasive personalities who used the public till as patronage for personal advancement, and particularly for electoral gain. Instead of weaning the public off the opium of state dependency, his politics actually feed it.

Whereas former Prime Minister Antonis Samaras engaged in fear-mongering during the election campaign, Tsipras exploited popular emotion. He has regularly preached the politics of victimization in recent years by blaming everyone else for Greece's hardships - the troika, Europe, international banks, the establishment and an entire array of protagonists. As prime minister, he should engage in greater introspection. The bottom line is that endemic corruption has been widespread and existed at all levels of society. Ultimately, change and reform can only take place through collective national transformation. In theory, Alexis Tsipras should now lead the process as prime minister. In practice, failure to do so will only further contribute to the vicious cycle plaguing Greece.

Greece lies at an historical crossroads. Hard decisions must be made that will determine whether it pursues a future in Europe or increasingly on its own. The threat of being left behind remains real. Firmly backed by public opinion, Tsipras vows to keep Greece in the eurozone. Although the EU can assume its portion of blame for the status quo in Greece, the roots of Greece's misfortunes primarily lie within, that is, in decades of economic mismanagement and rampant graft. Ultimately, the will to resolve and remedy these ills and the implementation of real reform can only emanate from within Greek society.