Friday, January 30, 2015

Greece Has Chosen, but It Doesn’t Get to Decide by Itself

by Jacob Funk Kirkegaard

Peterson Institute for International Economics

January 26, 2015

The radical leftist party Syriza won the election in Greece on Sunday with 36 percent of the vote, propelled by a campaign demanding an end to tough austerity measures imposed from on high in return for its rescue from insolvency. Together with the Independent Greeks party (ANEL), Syriza is now poised to form a Greek government, opening a new chapter in the contentious modern history of the euro area.

Syriza’s call for a new agreement with the euro area is not entirely far-fetched. The new Greek government faces pressure, however, to drop demands for immediate debt relief. It must also show that it can present a credible alternative economic plan for Greece. Some scope for negotiations about the details of the short-term fiscal stance and some of the structural reform requirements also seem possible.

If the new government has new suggestions for collecting government revenues, for instance, euro area governments would welcome them. But the most likely result is that Syriza will have to drop many of its electoral campaign demands. The euro area is not likely to accept an increase in the Greek minimum wage, as advocated by Syriza, or an elimination of the Greek primary surplus, or a broad rollback of the Greek privatization program, as part of any renegotiations with the Troika, consisting of the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF). And certainly the euro area will resist talk of future additional debt relief until after the current Troika program has largely been implemented.


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