Will Greece Trigger a European Crisis?

Greece’s anti-austerity party, Syriza, won a decisive victory last weekend, in what Eurasia Group President Ian Bremmer calls a repudiation of Europe’s existing order. With its historic win, Greece’s new government and prime minister, Alexis Tsipras, will attempt to change the terms by which economic policies are set across the eurozone and broader European Union—a process, Bremmer says, that may involve non-EU actors like Russia. Europe’s fractured politics, identified by Eurasia Group as the top global risk for 2015, could spur the rise of more anti-establishment movements. For the center to hold, Bremmer says that stronger leadership must emerge across the continent.

Greek Prime Minister Alexis Tsipras hailed the victory of his Syriza party as a defeat for austerity. (Photo: Marko Djurica/Courtesy Reuters)

Was this election in Greece a turning point for Europe?

Yes, it was. For the last few years, we’ve seen a strong German leadership backing austerity and countries across the periphery desperate to get out of crisis and willing to support in various ways what Brussels, Berlin, and Frankfurt were demanding. Popular sentiment opposing austerity has been growing steadily over the past couple of years but, until Sunday, hadn’t dramatically changed governments. That’s precisely what we saw in Greece this past weekend. And this was a big win—it was only two seats away from an absolute majority for Syriza. They’re forming a coalition government with the center-right Independent Greeks, who also strongly oppose Europe and austerity. You could not ask for a bigger repudiation of the German establishment, the Greek establishment, and existing European political structures.

Before the elections, many analysts were saying that a coalition government could enable Syriza to negotiate with a freer hand. Will Syriza’s coalition partner, the Independent Greeks, help in negotiations with Greece’s creditors?

Not particularly. That was the hope for people who believed that Syriza would need a much larger coalition partner, and that the party would have to go centrist. They clearly haven’t done that. I do believe that the Syriza leadership wants to be more measured: As Tsipras has gotten closer to taking power in the past few weeks, we’ve seen him backing away from talk about a eurozone exit and a Greek default. But the fact still remains that his economic policies are nowhere close to realistic given the flexibility that the Germans are prepared to show in restructuring. Syriza has repudiated austerity, but they’ve replaced it with no money. I don’t know how it plans on funding its stimulus program.

Does Tsipras run the risk of alienating his liberal base with his choice of a center-right coalition partner?

I’m not worried about Syriza’s coalition partner. One of the best pieces of news out of Greece was that the Neo-Nazi [Golden Dawn] party only got 6 percent of the vote. They’ve just gone through a depression, and given that Greek youth unemployment stands at 50-plus percent, this outcome speaks really well for Greek stability and democracy.

Syriza’s ascent to power does, to a certain degree, undermine Europe’s ability to act in a coherent way, in terms of supporting common values. So it’s a challenge. Given how strong the antipathy toward the Greek establishment is and given what the Greek people have just suffered, I think there will be a real patriotic moment where Syriza is probably going to get some time. Syriza’s base is pretty disenfranchised, and I don’t think they’re expecting a chicken in every pot. And Syriza is betting that this nationalist sentiment, given how badly Greece has been hit, will actually work [in their favor].

EU leaders indicated on Monday that they would be amenable to extending the current bailout agreement. Should we all bank on an eventual Greek haircut, despite German protestations to the contrary?

We should bank on more movement toward compromise. But it’s going to be ugly, and it’s going to take time. The Germans have their own state elections coming up, so [German Chancellor Angela] Merkel is not going to want to be seen as capitulating to Greece, especially on the heels of the European Central Bank’s quantitative easing program, where she just lost out to [ECB President] Mario Draghi. She’s not going to want to [forgive Greek debt] because it might open a back door to Spain’s Podemos [party] and other populist movements across the periphery. So for lots of different reasons, the Germans are not going to move far, even though there may be a desire to compromise. And even if Tsipras wants to compromise, he’s also going to have a whole bunch of never-empowered-before parliamentarians and members of cabinet who are likely to say things that are very inflammatory in the coming months.

How concerned should we be about Syriza’s lack of experience?

We should be concerned. Mistakes can be made. There’s no question that Syriza, having never governed before, is not exactly a coherent party. The left wing of Syriza is clearly not going to be happy when Tsipras starts negotiating with the troika [of the European Commission, IMF, and ECB]. When that happens—and if he gives up too much—this party could fall apart. People like [former Prime Minister Antonio] Samaras are going to be waiting in the wings, hoping that’s precisely what happens.

If nothing else could go wrong in Europe in the next six months and the global economic environment was sympathetic, we could afford to be less concerned. But you’ve got massive escalation between Russia and Ukraine, amplified security concerns following the terrorist attacks in Paris across the continent, and upcoming elections in Spain. There are lots of things that could go wrong in Europe in the coming months. A lot of factors could really hurt the Greek-German negotiating process.

Given the apparent intractability of the Germans, how do you think Syriza will approach the issue of debt restructuring?

What will be interesting to see is if a political solution can be found outside of the European Union. The Russians would love to find a way to scuttle the West’s sanctions and also really stick it to the Germans. (That’s why we saw the Russian cyberattacks against the German government recently.) Tsipras and Syriza are also very pro-Russia. In May of 2014, Tsipras actually said that he would not recognize the "neo-Nazi" government in Ukraine. In part, it’s the strong Left, anti-European sentiment. But Greece also gets a lot of money from Russia through trade and tourism. Greek Cyprus is also part of that. Russian banks and companies accounted for almost half of the lost deposits when Cypriot banks went under in 2013.

Russians would love a warm-water port, and Ukraine is not working out for them, and Syria’s been working out even worse. Now the Russians are under economic duress themselves—but Greece is really small. The Russians could push the issue and tell the Greeks, "Hey, we’ll bail you out, but you have to leave NATO and join the Shanghai Cooperation Organization. And you’re giving us access to the base." That would absolutely be attractive for Syriza. And frankly, I might even see the Chinese joining in, since they’ve already put a lot of cash into the Port of Piraeus, for example. So there are political levers that Syriza’s going to want to play.

I’m not saying that this is definitely going to happen, but there are going to be efforts by this Greek government to use every lever at their disposal to restructure their economic debt. They don’t have an awful lot of leverage just telling the Germans, "We might leave; we might default." Merkel has already come out and said that the Germans could handle a Greek departure from the eurozone, and we can expect the Germans to push back pretty hard in this next round of negotiations.

What are some of the challenges for Chancellor Merkel as she prepares for another round of negotiations?

In Germany, the prevailing sentiment is that austerity is just the right way to address a debt crisis. They believe in structural reforms—not easy money or stimulus spending. That’s the consensus in Germany, and it’s one that would be difficult for Merkel to counter even if there wasn’t this pressure from other countries. Given that there is, it makes it a lot harder. And for Merkel, this is not just about Greece. She’s dealing with a multi-faceted [game of chess] involving the future of Europe that needs to be sustainable over the long term.

Does Syriza’s victory signal a golden age for non-traditional parties (on both the Left and Right) across Europe?

In places where you have charismatic leadership, the support for these parties is there. There are structural drivers that are going to lead to greater levels of anti-establishment, Euro-skeptic parties focusing on greater nationalism and sovereignty. We’re going to see these structural drivers working their way across the eurozone area and even across the broader EU. How successful they’ll be will depend on the nature of the individuals leading the parties and national dynamics.

There’s no question that Marine Le Pen and the National Front have been building a lot of support in France, and the far Right will continue to do well in France as a consequence of these drivers. And the enthusiasm for Spain’s Podemos party on the streets absolutely goes up a couple ticks after what just happened in Greece.

Is this populist surge a repudiation of European federalism?

It’s a repudiation of the loss of sovereignty that many national governments experienced by virtue of linking fiscal policy to currency policy. That may have worked to keep Europe together, but it did not work for majority populations in most of these countries where labor rates are way down, youth unemployment is way up, and support for far-Right/far-Left parties is on the rise. Greece is the first place where you’re actually seeing the direct repudiation of everything that the Europeans did to get out of this crisis. It’s not just that all Greeks love Syriza. Syriza did make itself seem more palatable by saying, "Hey, we’re not going to throw out the entire European project," but they have firmly rejected the policies of the troika. What Tsipras has said [in his campaign] is dramatically different than anything that would have been conceived from a European government three years ago.

Is there still a possibility of a "Grexit"?

It’s there, but the issue extends beyond “Grexit." The issue is that the politics and economics in Europe are going to get worse. The issue is that the perception of crisis is taking root once again. The issue is that other parties of similar alignment are going to make gains, and the political cohesion of Europe is going to deteriorate even further.

Eurasia Group identified European politics as the top global risk for 2015. How can the peripheral states and core realign their politics?

We need stronger leadership to emerge across Europe. If French President François Hollande can figure out how to maintain some of his momentum after the Charlie Hebdo attacks, and if the Tories [Conservatives] in the UK retain power after the next general election, hold their referendum, and succeed in staying in Europe, then you could imagine a situation where it’s not just the Germans leading Europe: it’s the Germans, the French, and the Brits—and that creates compromise. That [coalition] actually allows for a broader mandate and a level of institution building with a periphery that is not so incredibly polarized, which is the situation that you have right now. Unfortunately, that means it’s going to get worse before it gets better, so there is no solution for this in the near term. In the medium term, there is, but we have to get a little lucky.