On many fronts, Europe’s financial troubles are ebbing, and if the forecasters at the European Central Bank, the World Bank,and the International Monetary Fund have it right, the euro zone should pull out of recession by the second half of the year.
But don’t declare the crisis over. Greek opposition leader Alexis Tsipras won’t let you. His hard left Syriza Party is polling stronger by the month, and if the country’s current fragile government coalition falls apart anytime soon, he could become Greece’s next prime minister.
If that happens, the carefully crafted sense that Europe is returning to normal could come crashing down. Tsipras, on a U.S. tour to burnish his firebrand image on Capitol Hill, at the State Department and at the International Monetary Fund, insisted in a speech at the Brookings Institution on Tuesday that he wants Greece to remain in the euro zone.
But he also was clear that he regards the current, German-dominated currency union a mismanaged disaster, feels the international bailout of his country has done little more than propagate human misery and mass unemployment and says that eventually the debts Greece owes to the rest of the world — largely to other European countries and the IMF — will have to be renegotiated.
If those sound like fighting words, well…
“We are prepared for a battle,” Tsipras said. “In politics there is no such thing as tea and crumpets. There are interests that conflict.”
Tsipras finished second in parliamentary elections last summer that were seen as a national referendum on Greece’s membership in the currency union. Since then, a coalition involving the country’s major conservative and socialist parties has held power and successfully negotiated new budget cuts demanded to keep international loans flowing, kept Greece in the currency union and started on steps it feels could revive the economy.
There’s no guarantee, however, that the coalition can hold on to finish the job as it begins laying off thousands more workers, deregulating powerful professional groups and making the other changes it has promised to the IMF, Germany and other large creditors. The country’s top officials are sparring not only over policy, but over who gets investigated and who doesn’t as the country learns more about the extent of tax evasion, secret Swiss bank accounts and other aspects of Greece’s mismanagement.
Tsipras is convinced the situation is on “a one-way street to disaster” – with the austerity that was supposed to revive the economy instead undercutting it, leaving Greece unable to repay its international loans. To Tsipras it is a self-defeating , snake-eating-its-tail brand of tragedy.
If elected, he says he won’t back out of the euro (what critics claim is his true aim). Rather he seems to be planning to try to hold the region hostage to coax a better deal in the form of less austerity and a break on the outstanding loans — in short, a fresh start.
In a speech littered with plenty of rhetoric about “robber barons” and plans for a “redistribution of wealth,” he said he was depending on fears of a euro breakup to give him leverage.
“We know our strengths and weaknesses,” Tsipras said of Greece’s place in the currency union. “If one of the links breaks it will be bad for the entire chain. . . . If a country like Greece leaves the currency, the next to leave would be Germany,” out of fear the currency region would disintegrate in an expensive meltdown.
He may be in for a rude surprise. One aim of Europe’s strategy during its now three-year crisis has been to buy time to better prepare for the worst. No one wanted Greece to default when it first disclosed the depths of its financial problems in 2009 because it would have wrecked the French and German banking systems — a possible prelude to a new “Lehman-like” collapse of the global economy.
European officials would still prefer Greece not to leave. For that to happen now, after so many summits, so much rewriting of European law and so many tens of billions of dollars in loans, would be a political embarrassment and, to some degree, destabilizing.
But it would not be as costly as it would have been before. The big banks and pension funds are well-hedged and largely divested of their Greek bonds, the money market funds are long gone from the country and the sense is that a Greek euro exit would spell a year’s worth of trouble for Europe but likely not cause any kind of global catastrophe.
In the most recent IMF report on the country, the fund estimated that a Greek exit might cost the euro zone as little as 1.5 percentage points of growth in the first year — not inconsequential, but a price some might pay to have done with the Greek drama.
Recall it was the heads of Germany and France who gave former Greek prime minister George Papandreou the ultimatum of bringing Greece’s finances into line or leaving the euro zone. If Tsipras takes charge and heads off to Berlin, Paris or IMF managing director Christine Lagarde’s office with an ultimatum of his own, he may not get the answer he expects.