Can EU extract its pound of flesh?
Recent events in Greece have left the Eurozone’s future in the midst of uncertainty. Alex Tsipras, leader of the radical left-wing Syiza party, won a historic victory in Sunday’s parliamentary elections. His victory has set the stage for a showdown with Greece’s foreign creditors that could shake the very foundation of the European Union. In his poll campaign, Tsipras promised to end ‘the five years of humiliation and pain’ that his nation has endured in the wake of an international bailout that saved it from bankruptcy. Years of austerity measures, however, with economic output shrinking by 25 per cent and unemployment at 26 per cent has resulted in a populist backlash. This backlash, however, has spread to other nations in the European Union as well. Citizens in France, Spain and Italy have also grown increasingly frustrated with economic policies that seek to meet the demand of international creditors, without delivering on more jobs and greater prosperity. Consequently, Syriza will the first anti-austerity party to take control in a Eurozone country, leaving a significant imprint on what may follow in other member nations. In its essence, the party’s victory was a reaction against those who imposed austerity measures without ever taking into account the effects such drastic polices have on many in the middle class and poor. In an environment where the common man cannot see the light at the end of a tunnel, as it was the case with austerity measures, their reactions will be to turn towards those politicians who will change the process.
In light of these reactions, the newly-elected Greek Prime Minister’s biggest promise to force Greece’s creditors to renegotiate terms of its €240 billion financial bailout has stirred major concern among those in Brussels and European financial market. Tsipras’s argues that easing the terms of bailout will provide greater leg room for the government to spend. Greater expenditure, as the Keynesian model suggests, would stimulate economic growth and employment, as well as come to aid of those citizens that require most help. The immediate challenge, however, that stares Tsipras in the face, is the €7 billion bailout package that his government requires to keep its government afloat and pay off the billions it owes. His demand to write down at least half of Greece’s €319 billion public debt to initiate greater government spending might leave lesser space for negotiations with those in Brussels. One of the greatest constraints that Greece faces is the fact that Athens cannot monitor its own monetary policy, which is pegged to the larger European Union. Although there has been no formal indication, Athens could force itself out of the Eurozone and fix its monetary policy to pay off their debts in a manner that does not hurt the common Greek.