Andy Langenkamp is a global policy analyst for ECR Research.
Five years ago, Greece became the first member to endanger the survival of the eurozone, and now, once again, the Hellenic nation challenges the fundamental political, economic, institutional, and legal assumptions of the common currency's framework. Yet markets don't seem especially worried about a Grexit (partly because the European Central Bank's quantitative easing program has perverted markets).
Some respected analysts at banks and other research houses, however, are increasingly starting to worry. Barclays' Philippe Gudin wrote: "The risk of an accident is still very high in our view, which could imply a Greek default and even possibly a Greek exit from the single-currency union." Macropolis analyst Wolfgang Piccoli said "Greece's moment of truth is inexorably approaching...It is difficult to see how the situation could improve in the crucial weeks ahead."
So are Athens and its European counterparts on their way to a clash that will break up the currency union, or are the fears of Barclays and others overblown?
All parties need to reach a deal in the coming weeks. Otherwise Greece will run out of money, and institutions will no longer be allowed to help them out.
End the blame game
The eurozone and Greece can no longer simply trade accusations over who is to blame for the crisis. Athens' creditors must admit that eventual debt restructuring is inevitable. The Greek government, led by the Syriza party, cannot go on stalling. Greek leaders must prove that the administration can indeed be radical - but radical in the sense that it breaks with previous governments and starts battling corruption head on. This means improving tax collection, making real progress on privatization efforts, etc. In fact, Syriza has so far moved away from radical form while in office - but in the wrong direction. The party is emulating its predecessors by foot-dragging over reforms while blaming the majority of Greek suffering on outside forces.
But can Syriza yet be Greece's radical savior? The news that Greek authorities are escalating a criminal investigation against the head of the nation's official statistics office (Elstat), Andres Georgiou, doesn't bode well. Critics of Georgiou accuse him of inflating Greece's budget deficits to help justify Greece's bailout. The investigation bears all the hallmarks of a witch hunt. The outcome of this case will indicate how serious the current government is about setting Greece along a sustainable political and economic path.
Prime Minister Alexis Tsipras still underestimates the magnitude of the problems his country is facing right now, if he meant what he recently wrote to German Chancellor Angela Merkel: "I am urging you not to allow a small cash flow issue, and a certain ‘institutional inertia,' to turn into a large problem for Greece and for Europe." Those "small" issues could herald an unprecedented blow to European integration.
Fortunately, within his own party, Tsipras increasingly embodies a willingness to compromise to save his country. Tsipras realizes that most voters did not elect Syriza out of ideological conviction, but because they were fed up with the old parties. In other words, the overlap between Syriza voters and the party is small, as Dutch journalist Marloes de Koning puts it. This also implies that there is room for compromise if Tsipras manages to keep the radicals in his party in check.
This was clear during the recent discussions between Tsipras and Merkel. Both leaders succeeded in accomplishing the purpose of the meeting: to defuse tensions and prevent public acrimony from impeding the search for a way to keep Greece financially solvent, and to keep the country in the euro. But just because the air has cleared a bit, it does not mean that a solution is inevitable.
The moment of truth
Tsipras can no longer hesitate; he has to choose. Will he seek to please the technocrats and politicians of the eurozone, the European Central Bank, and the International Monetary Fund, or will he instead acquiesce to the real radical-left elements in his Syriza party (not to mention his coalition partner, the rightwing-nationalist Independent Greeks)? He has so far played for time, putting off the moment of truth. Unfortunately for him, time and money have run out.
From the creditors' perspective, many are convinced that the eurozone would be able to cope with a Grexit economically, especially having fortified the eurozone architecture with measures such as the banking union. However, political considerations will get the upper hand - these are national-electoral, and they are geopolitical. There are numerous European elections coming up, and politicians would prefer relative stability in the eurozone so as not play into the hands of populist parties. Moreover, with the Ukraine crisis, and volatility in countries neighboring the European Union, geopolitics has regained a prominent place in the minds of European leaders. If they were to decide to cut Greece loose, Athens could turn to Russia and China for help. Nobody wants that.
So as a result of Tsipras' lack of actual left-wing radicalism, the life-threatening condition of the Greek financial sector, and the electoral considerations of European politicians and geopolitics, we still think that Greece and the eurozone will hammer out a deal in the coming weeks.