THE BLOG
01/26/2015 04:13 pm ET Updated Dec 06, 2017

Will Spain, Italy and France Follow the Greek Revolt Against Austerity?

ASSOCIATED PRESS
the european

ATHENS -- In the weeks before the sweeping victory of radical left Syriza, pre-election dinner parties organized in posh Athenian neighborhoods had a mocking theme: "Let's eat our last supper, before the commies come and take away our houses, bank accounts, etc."

It was a repetition of the 1981 scare-rhetoric, when Pasok came to power and promised to redistribute wealth, creating similar fears among the upper classes. Nothing of that sort happened. The Greek bourgeoisie survived two decades of Pasok reign unscratched.

Many see Syriza as Pasok reborn, a new Volkspartei, which promised too much during the campaign, only to be abruptly confronted with the reality after the election. The U-turn is already obvious in the words of Greece's new prime minister, Alexis Tsipras: once he ironically called the German chancellor "Madame Merkel" and accused her of leading the Greek people into hell. In more recent comments he attributed Ms. Merkel's obsession with austerity to her Protestant ethic and her rigidness in observing the rules.

A German journalist I spoke with recently predicted the German chancellor wouldn't have such of a hard time with Syriza's leader: "She managed to exterminate all enemies of her own party, beginning with Helmut Kohl and ending with Karl-Theodor zu Gutenberg. She will eat Mr. Tsipras for breakfast," he predicted.

"The Greeks expect Tsipras to scale back demands."

Merkel herself said that Tsipras would scale back the demands that have put him on a collision course with creditors. That's what the majority of Greek people expect from him and that's why many of the voters supported him: in the expectation that he wouldn't do what he pledged to.

This Doctor Jekyll/Mr. Hyde attitude of the Greek electorate reflects the persistently high percentage of people who favor remaining in the Eurozone. It also explains the carte blanche now given to Syriza's expensive economic program that puts Greece at risk of a clash with the troika and paves the way for a "Grexit."

The two-month-extension of the current program (which the previous government achieved in order to finalize negotiations with the troika) expires at the end of February. Liquidity is running out, given the extensive deposit withdrawals over the last weeks due to political uncertainty (2,5 billion Euros in a month).

Many taxpayers refused to pay their debts to the tax authority in the prospect of a Syriza win, as the radical left pledged to scrap an unpopular property tax (ENFIA). Investors are unwilling to put their money in a fragile economy that could end up not being part of the Eurozone in a few months time. Unemployment remains very high (25,8 percent in October 2014), although there were some encouraging signs in the data last published.

The success story of a budget surplus, which the previous government tried to tell, is beginning to show cracks. Its timing is very unfortunate: Greece could be a breath away from recovery and find itself facing a Grexit.

The big question is how good a diplomat Mr. Tsipras is. How will he find common ground with the EU, the ECB and the IMF without angering his electorate and the left wing of Syriza, which consists of Maoists, Trotskyists and Eurosceptics. Yannis Varoufakis, an economics professor tipped to be the next finance minister, famously told a journalist that if ECB head, Mario Draghi doesn't give in to Syriza's demands, Mr. Tsipras should hang up the phone on him.

But now that Syriza has seized power, a standoff with Mr. Draghi looks highly unlikely. On the contrary: His offer of a Greek participation in the QE, providing the country sticks to its bailout program, could provide the essential incentive for a future compromise by the new Greek government.

Mr. Tsipras could show some symbolic gestures (by reopening ERT, the public broadcasting corporation, rehiring the 600 cleaning ladies of the economy minister or increasing the tax for higher incomes) and backpedal on other issues (namely the minimum wage and the re-regulation of the labor market), which could prove a casus belli for the creditors.

"Spain, France and Italy could follow."

During the election campaign, there was a cacophony of contradicting opinions coming from Syriza candidates. Nobody knows for sure who spoke the truth. The aforementioned Mr. Varoufakis, who favors a chicken game with Draghi? The left-wing hardliner, Mr. Panagiotis Lafazanis, who doesn't consider the Drachma a taboo? Ms. Nadia Valavani, who could become the next minister of foreign affairs and has said that, once in power, her party would ask for a program extension? Or Mr. George Stathakis, a possible development minister, who finds a debt re-profiling more realistic than a haircut.

The strong mandate he got from the polls, has put a burden on Mr. Tsipras to fulfill the great expectations he produced. He gave hope to people that were reeling from the worst economic crisis in the post-war period, in a country that has lost a quarter of its 2008 GDP and entered its sixth year of depression. He has to live up to the pan-European hype he created, becoming an icon for the radical left in the EU.

If he succeeds, the Spanish Podemos, the French Front National and Italy's Bepe Grillo could all follow suit and question Berlin's fiscal orthodoxy. The much feared domino effect set off by Greece at the outset of euro crisis in 2010, could now materialize in another way.

This piece also appeared in The European.

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