The big question after the stunning election victory in Greece is: what is the price for keeping the euro project alive?
Alexis Tsipras thinks he knows. It amounts to a significant chunk of the country’s €320 billion debt burden, which the new leader of Greece will press his paymasters to write off in the coming weeks.
But the bill for holding Europe together will be much higher than that if his anti-austerity Syriza party is successful. Stock markets are already counting the cost of a result which sets the scene for months of uncertainty. The plunging euro says it all.
If Greece wins forgiveness from the International Monetary Fund and its European cousins, other eurozone weaklings such as Portugal and Italy will queue up for the same softer treatment. It is exactly the scenario which the German Bundesbank wanted to avoid.
Last week’s financial blunderbuss from the European Central Bank, the €1.1 trillion of quantitative easing, might have been unleashed months ago were it not for negotiations over how much risk individual eurozone nations had to bear. The programme won the blessing of political and business leaders as long as it was regarded as a window of opportunity to force through tough reforms and spending curbs, and not a free gift to kickstart growth in lieu of hard action.
The irony is that there are shafts of light for Greece’s economy, which is pulling out of recession having shrunk by a quarter over the past six years. If the country is abandoned to its fate, defaulting on its debts and possibly exiting the euro altogether, it would be consigned to more crushing poverty and greater unemployment as international investors give it a wide berth. Long before last night’s victory champagne lost its sparkle, the populist Tsipras was well aware of that as he prepared for negotiations.
There is room for compromise. Lenders could extend the maturity of Greece’s debt or alter some conditions, without sanctioning a write-off. Such compromise has been the story of the eurozone — a trading bloc preaching closer integration but unable to avoid economic stagnation as it limps along.
