”The euro will be saved only by thoroughly transforming it, that is to say by ceasing to view it only as a currency in the service of creditors. In other words, Syriza’s policy is the right one”, stresses this director of studies at the EHESS, alongside Mediapart.

In light of the victory in Greece last week of Syriza, the anti-austerity party led by Alexis Tsipras, it makes sense to compare it with the May 2012 election of François Hollande who, during his campaign, had promised to “re-direct Europe”. It obliges us to ask a fundamental question: to reiterate the alternative formulated by the Financial Times, is Tsipras’s strategy “radical or realistic”? Or, in the words of another leading economist, Frédéric Lordon, will it be a question of either “propping up the table” or “knocking it over”?

For Gabriel Colletis, a teacher of economics at the University of Toulouse-1 who has visited Athens often to follow Syriza’s debates, “It is important not to contrast the radical nature of their programme with the responsibilities they are preparing to take on: they are both radical and responsible”. In an interview with the “FT” about his readiness to agree a compromise with his probable future European partners, Alexis Tsipras gave this ambiguous reply: “I am prepared to compromise because my objectives are realistic. (…) At the same time, I know how to be firm if I think a confrontation will be necessary”.

From an economic theory point of view, the Syriza equation is not simple. It is renewing the discussions which divide the left in France and elsewhere in Europe about the virtues of the euro and the margins for manoeuvre of left-wing governments in a common monetary zone. Almost three years after François Hollande’s failure, Europe could easily find itself confronting a thrilling experiment: that of a left-anchored government, clearly in opposition to Berlin, but still ready to play the euro and European Central Bank (ECB) game. But, with constant treaties, is there room for anything other than lame compromises which all too often turn to the advantage of Angela Merkel and the ordoliberalism so dear to the Germans? That is the whole challenge which Syriza will have to take up.

“The alternative for Syriza is very simple: to bend or to put everything out to grass. But there will be no third term. And if Tsipras imagines he’ll be able to stay in the euro and obtain nothing but peanuts, he’s dreaming”, according to Frédéric Lordon’s blog. As Lordon sees it, the margins of negotiation for Greek debt with Berlin were already exhausted in the first debt restructuring operation of 2012 which caused losses to private creditors. “To imagine that (the restructuring of Greek debt) could be extended to public creditors, especially when those creditors include the ECB, now looks like a daydream”, he thinks.

On paper, Alexis Tsipras is categorical: a return to the drachma is out of the question. The debate within Syriza was settled in the summer of 2013 and the coalition minority which had been in favour of a “Grexit” (about 20% of the troops) aligned itself with the majority position. However, many observers, particularly in Germany, think Tsipras will not be able to keep his promise (to maintain Athens in the eurozone) if he does keep his word about the rest – especially the restructuring of the debt.

Will it be possible simultaneously to reduce the weight of the debt and restore it to “sustainable” levels, against the opinion of certain European partners, and avoid leaving the euro? Several economists, joined by Mediapart, are convinced it will. “The restructuring of Greece’s debt is not inconsistent with its keeping the euro. On the contrary, I am more inclined to think it is a necessary condition for its staying in the eurozone”, is the reaction of Jézabel Couppey-Soubeyran, a university professor at Paris I. “If the euro wants to go on existing, debts will necessarily have to be restructured, monetised (debt buy-backs by the ECB – ndlr) or mutualised, or perhaps a bit of all three solutions”.

Greek public debt stands at 174% of its GDP – a record in Europe (compared with about 95% for France). It represents a mass of 317 billion euros – to be compared with the “rescue” plans agreed with Athens since 2010 to enable Greece to avoid defaulting on a combined sum of 240 billion euros. In spite of years of harsh austerity, the burden of debt has grown even heavier, while the Greek economy has shrunk by a fifth. According to the Maastricht criteria, the debt of a member state must not exceed 60% of its GDP.

”Discussions within Syriza today concern the share of the debt which the next government will have to cancel. Some people think a third of the debt could be cancelled, reducing it to about 120%, a threshold above which a debt is no longer considered “sustainable”. Others prefer a target of two thirds, bringing it down to the 60% which corresponds to the Maastricht criteria”, says Gabriel Colletis (also one of Mediapart’s bloggers), who is more enthusiastic about the second scenario. He is also pleading for an immediate moratorium on the debt’s interest payments which, in his opinion, would suffice to finance the short-term “development programme” Tsipras has promised, estimated at about 12 billion euros (minimum wage increase, etc.).

What is Berlin’s attitude?

Before considering the plain and simple cancellation of great swathes of debt, other more cautious observers are speculating about “softer” scenarios, extending the duration of loans for decades or reducing the interest rate (already very low) on some of the loans contracted by Athens. In that spirit, a memorandum from the Brussels think tank Bruegel sets out an inventory of the methods which could lighten the cost of financing the debt – without incurring pure and simple losses for the creditors.

Athens might also choose to reimburse the debt owed to its European creditors but to default on the debt contracted with the IMF (placing it in a situation similar to Argentina’s with respect to that institution), as suggested by Daniel Gros, a German economist who de-dramatises what Syriza’s victory would mean for Greece: “The coming months will have many repercussions but, in the end, the difference between a government which has never kept its reimbursement promises (Nouvelle démocratie – ndlr) and a government which promises that it will not pay might not really be that great” as he ironically puts it.

According to Liêm Hoang-Ngoc, a former socialist member of the European Parliament and co-author of a report on the Troïka’s action in Greece, Syriza’s proposals ”are far from unrealistic”. In a recent article in L’Hémicycle, the Socialist Party’s economist explains: “Firstly, Syriza proposes restructuring the debt by a sum which would enable it to release 12 billion euros in order to apply a relaunch programme, without which the debt will continue to soar. For that reason, Alexis Tsipras proposes secondly to increase purchasing power in order to support recovery and to index the reimbursement of the debt on growth”. Following that logic, it would still be necessary to know which economic sector to relaunch, while the Greek economy is so damaged.

The Greek debt has already been restructured once, in 2012. Some private creditors (banks) then recorded losses of up to 70% of the value of their loans – and the operation did not cause the chaos so dreaded at the time. Since then, as Mediapart has already reported, the owners of the Greek debt have changed. The creditors are no longer private establishments but international public institutions – IMF, ECB, the European Stability Mechanism (ESM) – and some eurozone states which hold the bulk of the debt (about 70%). A priori, that transfer protects the European financial system from any threat of spreading if Greece were simply to default.

Although the project looks realistic from an economic point of view, everything will therefore depend on the attitude of those public institutions when the debt restructuring operations begin. To decode the message: it will be a matter of politics, no more and no less. A victory by Syriza, beyond the labels people want to stick on it (“radical left”, a social-democratic force which will not speak its name, etc.), would be important in that it reminds Europeans of a piece of evidence they have to some extent forgotten: there are margins of manoeuvre for opening a political debate, beyond the “natural” authority of the financial markets, to take Europe out of the crisis.

”I’m not saying that the public institutions will easily accept Syriza’s demands. For me, the main question of the moment is: what will be a Syriza government’s negotiation strategy with those public authorities?” says Gabriel Colletis, who is convinced that things are not going to last “months” and is expecting the first debt cancellation announcements very soon after a Syriza government is formed.

But will Germany accept this “debtors’ revolt”? If we believe some commentators, it will have no choice. “History teaches us that, after a debt crisis, a balance must be found between the interests of the creditors and those of the debtors”, writes the Belgian economist Paul de Grauwe, professor at the London School of Economics. “The unilateral approach which has been taken in the eurozone – where the debtors have been obliged to bear the whole weight of the adjustment – almost always leads to a revolt by those debtors, which is what is happening in Greece at the moment. And the process can only be stopped if the creditors dare to face that fact”.

To judge from the German anxieties expressed as soon as early elections in Greece were announced (but also in Finland or at the IMF), negotiations have already started between Berlin and Athens. Angela Merkel spent some time at the end of December denying reports in Der Spiegel that Germany was considering Greece’s departure from the eurozone if Athens chose to cancel part of its debt. Her Finance Minister won’t even hear talk about that scenario. Economists such as the “Keynesian” Peter Bofinger, dread the effects of contagion in Portugal and Ireland if Berlin pushes Athens towards the exit from the eurozone.

The German strategy can be explained by economic convictions which have not changed since the crisis began (ordoliberalism), but also by a changing national political game. Merkel views with displeasure the rapid rise of Germany’s Alternative für Deutschland (AFD), the party launched in 2013 by university people opposed to the euro, which achieved 7% of the vote in the last European elections. That party might benefit from the knock-on effect of a restructuring of the Greek debt because the operation would incur a complete loss for Germany which has lent Greece a total of 63 billion euros, compared with 48 billion for France. The subject arouses extremely heated debate in Berlin and many opinion polls indicate that a majority of Germans are against it.

That is the whole difficulty of the situation and of a Europe rife with contradictory political movements. A victory by Syriza could be good news in the short term for the future of Greece and of the eurozone because it would at last attack the roots of the Greek crisis with methods other than austerity. But, in the medium term, it could also strengthen anti-euro forces such as the AFD in Germany and oblige Angela Merkel to harden her positions on Europe, risking a split in the eurozone soon afterwards.

 

This article was originally published on Mediapart.