BRUSSELS — The election in Greece of a radical party that wants to overhaul the country’s bailout program raises new uncertainties for the Eurozone. But several European creditor nations hinted they will seek a compromise deal to avoid disastrous scenarios, like Greece falling out of the euro.
Financial markets took in their stride on Jan. 26 the victory of the left-wing SYRIZA party after several leaders in the 19-country Eurozone suggested they were open to discussing how to lighten Greece’s debt burden.
The country has since 2010 needed 240 billion euros ($270 billion) in loans from fellow Eurozone countries and the International Monetary Fund to avoid bankruptcy.
The talks are expected to be tough and protracted, however, as regional heavyweight Germany has so far taken a hard line on debt in Europe.
SYRIZA is calling on the Eurozone to ease the spending cuts and tax increases required in Greece’s bailout program and a lightening of the country’s rescue loans. The debt is at a level many economists think is unsustainable.
A tough stance by either side could, some fear, cause Greece to fall out of the euro, a development that could cause huge turmoil for Europe and the currency union.
SYRIZA leader Alexis Tsipras joined with the small right-wing Independent Greeks party, united mostly in their opposition to the austerity measures imposed by the other eurozone nations in exchange for the loans.
The tough spending cuts and tax hikes were meant to reduce debt but have also put the economy through a depression, causing unemployment and poverty to surge.
The two Greek parties now face the task of extracting concession from the rest of the Eurozone. Already on Jan. 26, there was more than one hesitantly outstretched hand.
Jeroen Dijsselbloem, the Dutchman who chairs Eurozone finance ministers’ meetings, said that even though “there is very little support for debt write-offs,” there is room to “come back to debt sustainability issues” in the future. He stressed “if necessary.”
His views were echoed by the leader of Finland, a country that has long been among the most unmovable on austerity issues, offered help.
Finnish Prime Minister Alexander Stubb said that even if he opposes forgiving Greece’s debts outright, he would be prepared to discuss extending loan repayments. Belgium’s finance minister likewise said there was some room to discuss the “modalities” to ease the Greek debt program.
Germany was non-committal beyond stressing that commitments needed to be kept. “Greece is still in the process of building a new government,” said German Finance Minister Wolfgang Schaeuble.
Though SYRIZA has talked tough about renegotiating Greece’s debt with the 19-country Eurozone, financial markets were calm on Jan. 26.
The main stock market in Athens has recouped most of the losses it booked at the open, and was trading 1.5 percent lower. The euro, too, has clambered up from 11-year lows.
Most investors and economists seem to anticipate a compromise along the lines of what Finland and Belgium hinted at.
Yanis Varoufakis, a SYRIZA member who is tipped by some to become the next Finance Minister, sought to downplay concerns that the new government would take an overly aggressive stance in negotiations.
He said the government would seek to convince its euro partners that reducing Greece’s debt burden by linking repayments to growth, say, would be positive for all parties.
At present, Greece has to repay its loans whatever the state of its economy, further worsening the country’s debt. At over 170 percent of GDP, Greece’s debt mountain is way beyond levels most economists consider manageable.
He has also dismissed suggestions that SYRIZA would threaten to pull Greece out of the euro, so-called Grexit.
“We who are in the Eurozone must not toy with loose or fast talk about Grexit or fragmentation,” he told BBC radio. “If that happens, disruptive forces would be unleashed.”
At the height of Europe’s debt crisis a few years ago, the main concerns was that a possible Grexit would spell the end of the euro project as investors looked for other countries to fall out as well.
However, many European politicians have said that contagion fear is not applicable now as Europe has built up institutions and financial firewalls to prevent it.
Not everyone in the markets is convinced with that argument.
“Once one country exits, who is to say that more would not follow, especially if the Greek economy enjoyed an eventual revival from a devaluation of the drachma and a further restructuring of the debt burden,” said Neil MacKinnon, global macro strategist at VTB Capital.
Whatever transpires, SYRIZA’s victory sends a message to European policymakers that voters are rejecting austerity and could bolster other anti-bailout parties, such as Podemos in Spain. It is an election-heavy year in Europe.
(RAF CASERT and PAN PYLAS)