Syriza Is Limited in the Promises It Will Be Able to Keep

Desmond Lachman 

The New York Times

JANUARY 27, 2015

In the depth of an economic depression, it is perfectly understandable that Greek voters would elect a government committed to reversing the austerity policies that were imposed on Greece from abroad and that have led Greece to an economic and social disaster. But it would be fanciful to think that simply rejecting austerity and insisting on official debt relief will put the Greek economy on course for a sustainable economic recovery. Indeed, such demands risk putting Greece on a collision course with its official paymasters that could very well lead to Greece’s exit from the euro before the year is out.

While it is certainly true that both the Greek government and the German government have every interest in keeping Greece in the euro, both are highly constrained in the concessions that they can grant to make that possible. After several years promising that it would tear up the much reviled International Monetary Fund-European Union memorandum of economic policies for Greece and that it would insist on major official debt relief, it is difficult to see how Syriza can make the large U-turn needed to keep its official creditors happy. This is all the more so the case considering the lavish promises on increased social spending that it made during the electoral campaign.

For her part, it is difficult to see how Chancellor Angela Merkel of Germany can back off from her insistence that, as a condition for continued official support, Greece must honor its commitments with respect to balancing its budget as well as to streamlining its public sector and privatizing state assets. If Germany were to agree to allow Greece to substantially increase public spending and to grant it major debt relief, surely it would be forced to do the same for countries like Ireland, Italy and Portugal. Especially at a time when German voters are already incensed about the European Central Bank’s recent actions with respect to quantitative easing, Merkel would risk the wrath of her electorate were she to be seen to be too generous with Greece and with the rest of the European periphery.

All of this puts Greece's newly elected prime minister, Alexis Tsipras, in the most unenviable of positions. Continuing with the I.M.F.-E.U. imposed budget austerity measures risks condemning Greece to several more years of economic misery. Yet opposing austerity risks having Greece’s official creditors cut it loose from the euro. And leaving the euro would almost surely result in a massive run on the Greek banks, which would plunge the country into economic and financial chaos.

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s policy development and review department and the chief emerging market economic strategist at Salomon Smith Barney.

http://www.nytimes.com/roomfordebate/2015/01/27/can-greeces-anti-austerity-government-succeed/syriza-is-limited-in-the-promises-it-will-be-able-to-keep