Syriza may be doing the Eurozone a big favour

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The “radical leftish” government of Syriza in Greece is not so radical or indeed leftish anymore. The “Marxist” finance minister, who is refreshingly bright and charismatic, has shown no “Marxist” leanings thus far. While many others in the markets and commentariat were panicking over Syriza’s win, we urged calm and reassured the public that Syriza’s election was good for Europe and good for Greece. A few days in, and signs are that we were right.

Despite several unsubstantiated rumours and sometimes deliberate, attempts to discredit a popular new government, Syriza has done a fairly decent job despite having no previous experience of governing whatsoever. It has not stepped on any nuclear mines, nor done irreparable harm to either its domestic or international standing. Yes it has had a somewhat rocky start but that was to be expected in such turbulent times and stressed conditions.

Syriza has done the Eurozone a great service by finally forcing it to start a debate on a number of critical issues that Frau Merkel, dubbed by the Economist as the West’s “greatest ditherer”, has so far declined to discuss.

First, it has brought to the fore the fact that excessive austerity in the whole of the Eurozone, but particularly in Greece, has had disastrous economic, social and political outcomes and has fostered a lost generation. Second, that the Troika configuration was dysfunctional from the start. Riven by institutional rivalries and deep fault-lines on key policy matters, it pushed messy compromises that were economically suboptimal and politically tone-deaf.

Third, that now is a good time for a new approach to the Eurozone crisis. With the worst of austerity behind us, the quantitative easing by the ECB, the steep fall in the Euro, the low price of oil and the cyclical recovery that appears to have taken hold in countries such as Spain and Ireland, the Eurozone has the wind in its sails for the first time in many years. A sensible conversation is needed on what fiscal, social and employment policies, reforms at the national and European levels, and a Eurozone-wide investment strategy – so that the fragile recovery does not falter yet again, as it has done on two previous occasions.

Germany might still, in its obstinacy, refuse to open these discussions or countenance any change. However, one hopes that, this time round, the trio of Renzi, Hollande, Tsipras supported by Lagarde at the IMF, ECB’s Draghi and Junker at the European Commission might be able to force the conversation.

Fact is that the Eurozone needs a new compact with its citizens both in crisis-ridden Southern and in better-performing Northern economies. This must promise hope and an end to the self-destructive policies that were enacted both leading up to the crisis and as a reaction to it. A Mea culpa, whether explicit or implicit, is a prerequite to any substantial changes in policies. By telling the truth on how poorly designed the Eurozone’s response has been so far, the new Greek government is sending a clear message to citizens not just in Greece, but also in the rest of the Eurozone. The telegenic presence of Yanis Varoufakis and his accessible analysis of what has gone wrong is reaching citizens across the Eurozone. It is giving hope to millions of EU citizens who have been at the wrong end of the mismanagement of the crisis and who have been losing faith in politics and their leaders. The only real way to avoid the populist backlash from the left and the right that leaders such as Rajoy of Spain and Merkel in Germany fear is to change the political discourse, improve policy and make sure citizens are able to see the light at the end of the tunnel.

At home, the Greek government was right to suspend the privatisation programme that has been an abject failure. Trying to sell public assets at fire-sale prices makes little sense, though reforming public institutions is critical. Here the declaration by the government of its intention to take on the entrenched bureaucracy and oligarchs with whom it has far weaker links than either Pasok or ND, who ran previous governments, is sensible and credible. Their declared intention to go after tax evaders is both economically and politically astute. It should help relieve some pressure on the poorest segments of Greek society who have borne the brunt of the crisis so far.

Which “radical leftist” government would promise to run a perpetual budget surplus as Syriza has? The climb down from the call for large face value haircuts to un-payable Greek debt was both predictable and sensible, and has already soothed nervous investors. The proposal to link debt repayments to growth, is eminently sensible and deserves to be implemented. The need to give more fiscal breathing room to Greece in order to allow it to implement structural changes also needs to be recognised. Much of the noise around the rehiring of some public sector workers, an important political and humanitarian gesture by a government that will have to renege on many of its promises to its people, is exaggerated.

Given the context, Syriza can almost be regarded as a centrist party. In fact, if you look at Syriza’s proposals, particularly on fiscal matters, it is Martin Wolf, Paul Krugman, Reza Moghadam of Morgan Stanley and even the IMF who are far more radical. If anyone is Marxist or radical leftist in this context, it is not Yanis Varukofis or Syriza, but the Financial Times and the International Monetary Fund, and just about every well-known economist outside of Germany.  

Syriza has been elected by desperate people who need hope and wish for change. It is showing promising signs of maturing from a protest party to one that can govern in a record time under enormous stress and unprecedented scrutiny. For the sake of democracy, for the sake of the Greek people and for the sake of Europeans let us wish them luck. They may yet fail, but one must hope that they succeed. If you cannot help, at least do not sabotage them.

Sony Kapoor is Managing Director of Re-Define and a Senior Visiting Fellow at the London School of Economics