Greek voters set stage for tense austerity negotiation

Greece’s socialist left has won power. Now it needs to wield it.

For Syriza, the left-wing, anti-austerity party that seized control of the government in Sunday’s snap parliamentary elections, that means following through on its number one campaign promise: to renegotiate the terms of Greece’s economic bailout with the International Monetary Fund (IMF), the World Bank, and the European Central Bank (ECB). Those three financial institutions, collectively known as the “Troika,” have made their economic assistance contingent on Greece’s willingness to pass a series of draconian austerity cuts.

Syriza’s victory was motivated in large part by Greek disgust with austerity. Sharp budget cuts and public sector layoffs have contributed to elevated unemployment, widespread hunger and the erosion of the national health care system; Syriza has positioned itself as the best hope for undoing that damage.

Josh Bivens, research and policy director at the Economic Policy Institute (EPI), expressed qualified hope that Syriza would be able to follow through and negotiate more lenient bailout terms with the three financial institutions.

“I think, for appearances' sake, at a minimum, there has to be a negotiation,” said Bivens. “And I think it will be good faith around the edges, even."

That’s in part due to an apparent softening of the Troika’s position on austerity. Over the past six years, the IMF in particular appears to have become “much more supportive of the idea that austerity in the current moment has been very bad for stabilization,” said Bivens. He cited IMF chief economist Olivier Blanchard, who has issued reports arguing that the institution underestimated the damage fiscal austerity would wreak on the Greek economy.

Michalis Nikiforos, a research scholar at Bard University’s Levy Economics Institute, said it would be premature to say whether any good will come out of negotiations between Greece and its creditors. However, he noted that French President Francois Hollande and other European leaders have said they hope to cooperate with the new Greek government.

“It remains to be seen to what extent they are willing to negotiate,” said Nikiforos. “I think it’s too early for that."

He also emphasized that a Greek exit from the eurozone is unlikely: Syriza has said that it wants to remain within the currency union. Instead of dropping out entirely, he said the governing party will likely attempt to renegotiate Greece’s bailout on three fronts: The harsh austerity requirements, the debt repayment terms, and “a more medium or long-term plan for the development of the Greek economy."

With so many issues to address – and a Greek economy in shambles – it is likely that Syriza’s call for negotiations will be the start of a very long process, not the end of an ordeal. Even if Greece negotiates more favorable terms, its debts could hound the government for a very long time.

“There could be more debt forgiveness, but Greece has a very, very large debt,” said Bivens. “As for how comprehensive that debt forgiveness could be, there’s a lot of range there."