Greek mandate: Volatility concerns

The victory of the radical leftist Syriza Party in elections in Greece has imparted an element of uncertainty into an already weak European Union economy.

Party leader Alexis Tsipras has been sworn in prime minister and his government has a rightwing party, Independent Greece, as a partner.

Though the two parties are on ideological extremes, they have a common platform against the harsh austerity measures imposed on Greece as the price of a bailout package given to it by its EU creditors. Syriza had campaigned in the elections with the promise that it would get the country’s debt forgiven or rescheduled on milder terms and put an end to the austerity regime.

Tsipras’ statement that the mandate has cancelled bailout and the troika of creditors – the European Commission, the European Central Bank and the International Monetary Fund – is a thing of the past, has created concern and even alarm. If the government moves in the direction of implementing the party’s election promises, it will bring it into conflict with its creditors.

It is true that Greece has had hard times with the forced austerity steps which led to job losses, cutback in public services, wages and pensions, high unemployment and general distress. This resulted in deep popular discontent but it was the bailout which brought Greece back from the economic brink. The creditors, led by Germany, would not be
willing to make more concessions. A final bailout tranche is due soon but to renegotiate it for easier terms would be difficult. In any case, going against past commitments is not good international practice.

It will not set good precedents too. Populist sentiments against austerity are gaining ground in other distressed economies like Spain and Portugal. This also combines with an anti-EU mood which is spreading in some countries like the UK where the rising UK Independence Party is championing it. It is not politically good for the EU. Only a few days ago, the ECB tried to stimulate the economy with a huge quantitative easing programme, and it will not like to deal with a disruptive action from Greece.

There will be a lot of financial volatility if Tsipras presses ahead with his declared plans. The impact may be felt outside Europe too. There is even speculation that it may lead to the exit of Greece from the euro zone. This may be unlikely because even Greeks do not seem to want it. Europeans also may not push Greece out because it can move it into the Russian orbit.

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