The election of the anti-austerity Syriza party in Greece has raised the spectre of further instability in the European Union and heightens the possibility of a Greek exit from the Euro.
After a period of relative claim in Europe, the election of the anti-austerity Syriza party on January 25th in Greece threatens to unravel a shaky European political consensus regarding the necessity of austerity at a time of anemic economic growth and deflationary pressure.
The EU is entering a potentially explosive situation with new anti-austerity parties, particularly in Spain, gaining rapid support. These parties threaten to upend a political and economic consensus that has emerged in the EU in the wake of the global financial crisis of 2008.
What is Syriza?
Syriza rose from the margins to the center of power due to the harsh conditions attached to the €240 billion bailout fund provided to the country by the so-called “troika” of the EU, European Central Bank (ECB) and the International Monetary Fund.
The wage cuts, privatizations, and changes to the legal code required to receive successive tranches of loans from the troika sent the Greek economy into a deep depression.
Greece has experienced 24 successive quarters of contraction, with GDP shrinking by 33% over a 5-year period.
This is worse than the 27% decline in GDP experienced by the United Statesduring the Great Depression. Unemployment in Greece is at a startling 28%, with youth unemployment rates over 60%.
Under these conditions, support for the traditional Greek parties, which enacted the austerity measures dictated by the troika has collapsed.
Most notable is the near disappearance from the political scene of PASOK, formerly one of the two main parties in Greece; its support dwindled to 4.7%in the last election, a stunning collapse from the 44% of the vote it received in 2009.
Greece’s new government is on a collision course with the EU
The new Syriza government has placed itself on a collision course with the rest of the EU. It has refused to enter discussions with the troika and demanded that at least half of Greece’s debt be annulled.
Germany, the major economic powerhouse of Europe and foremost advocate of austerity measures, has rejected these demands, saying that there will beno forgiveness of Greek debt.
Greece’s current bailout agreement expires on February 28th. It will not receive the next tranche of its bailout money, €7.2 billion, without a successful review of its reform programme being completed.
Yet, the first actions Syriza took upon gaining power were to cancel a planned privatization of Piraeus harbor and raise the minimum wage, which directly violate the terms of its bailout agreements.
If Greece fails to receive these funds, it will have little choice but to default on its loans, precipitating an exit from the single Euro currency.
This is a situation that neither Syriza, nor the rest of Europe wants, but will occur unless either Syriza or the European establishment alters its policies.
The brinksmanship of the present moment and the possibility of a disorderly Greek exit from the Euro has sent the Greek stock market tumbling and its bond yields soaring. The next several weeks will be crucial to the direction of each as political and economic realities collide in Europe.