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Hellenic Bells

On January 25th, Greece headed to the polls and gave an astounding victory to Syriza in what might constitute the biggest slap in the face of the European Union since the advent of austerity. In its 26 days in power, the newly elected Prime Minister Alexander Tsipras has halted the privatization of energy company PPT, promised free electricity to poor households and rehired all civil servants fired under the previous governmental office. Surveys conducted in the past week clearly show that the new office enjoys a high rate of approval among Greek citizens, and demonstrators in Spain are already demanding their government follow Tsipras’ example. However, notwithstanding Syriza’s popularity, high-members of the party and Greek demonstrators are already demanding Tsipras and Finance Minister Varouafakis be more aggressive with the European Union and avoid making excessive concessions to its creditors. As the shadow of the extreme right grows over Europe, Greece’s creditors should realize that forcing Syriza to tighten the belt of austerity might entail consequences that no one wants, such as further disengagement of the Greek citizens from the Union and the subsequent raise of xenophobic and far-right parties in the Hellenic Nation and elsewhere.

So far, Greece’s creditors have been busier digging in their heels than seeking dialogue. Three weeks ago, the ECB decided to end the agreement that allowed Greece’s government to exchange junk-rated bonds for euros (i.e. to have easy access to cheap credit), thus forcing Tsipras to either renew Greece’s deals in terms set by the EU or else opt for default. After some days of uncertainty and subsequent market turmoil, Syriza has presented several conditions in order to renew the deal, most importantly to run a smaller budget surplus to have spare funds and to tie Greece’s debt payments to the country’s GDP. This last measure is particularly interesting since the Greek nation is offering to pay back its creditors only if the conditions that they enforce actually lead to economic recovery.

Alas, Germany’s Chancellor Angela Merkel is demanding more. As the representative of Greece’s largest creditor, the strongwoman of the EU has already declared that “there is a need for significant improvement in the substance of what is being discussed,” thus implying that Greece’s provisions will not be accepted. It seems that Germany wants to put even more pressure on Syriza to reduce its demands and comply with the previous plan. Having declared a few weeks ago that the Eurozone is ready for Greece’s exit from the euro, Merkel is sending a very clear message: The debt problem is a Greek problem, and if Greece does not want to follow Germany’s conditions, it will be Greece that suffers the consequences.

However, EU members should feel pressed to find solutions on which both parties can agree. Syriza should act as a cautionary tale for countries like Germany, not because of what Syriza is (ultimately a left-wing party without the extremist leaning that catastrophists had predicted) but because of the connections between the popularity of Syriza and that of more dangerous alternatives. Despite their obvious differences, the same motor the fuels the popularity of Syriza is fueling the raise of far-right parties. Marine Le Pen’s outbursts against a France that has “succumbed to the neoliberal policies of the European Union,” “destroyed public services,” and is “ruled by multinationals and financial institutions” suggests indeed that the far-right is seeking to find allies in those who, regardless of political alignment, are fed up with Brussels’ condescendence. Evidence suggests that this is quite a large pool, and it may behoove Merkel to pay less attention to Weimar’s hyperinflation and heed instead the lessons of German history surrounding the consequences of large amounts of dissatisfied citizens who are forced to comply with agreements that they deem unbearable.

But -Brussels might say- haven’t we done enough? Haven’t we given massive amounts of money at ridiculously low interest rates? Haven’t we already cut Greece’s debt by half? Be this as it may, these measures are far from sufficient. As economists Sachs and Rodrik have pointed out, Greece’s debt at its current level is economically and politically unbearable. Though Germany has reduced Greece’s financial obligations by a very significant amount, the latter still possesses a deficit of 175% of GDP that Greece will not be able to repay unless it undergoes an amount of pain that democratic societies are simply unable to endure.

But – Brussels replies- will not our money go to waste in a corrupt office and an inefficient public sector? Isn’t the Greek crisis ultimately a responsibility of the Greek people? Truth be told, it is evident that Greece’s government was corrupt, and two main reasons behind Greece’s default were the government’s falsification of domestic accounts in order to enter the EU and the inefficiency of the Greek economy. However, Minister of Finance Varoufakis has already compromised to tackle corruption and curtail the benefits and privileges of the Greek oligarchy as a part of his new economic plan. On the other hand, however inefficient the Greek economy might be, one cannot avoid questioning the effectiveness of Brussels’ approach after the disastrous effects of so many allegedly benign “reforms”. Economic theory teaches us that liberalization fosters competition and frees resources from inefficient sectors in the economy to distribute them to more competitive ones. However, at a time of crisis, people’s reluctance to invest (Keynes’ famous animal spirits) enhances the former effect and cancels the latter, leading to job destruction without job creation. Liberalizing at a time of social crisis is never an advisable position. However important reforms might be, top-down impositions of austerity will further alienate the population from the Union and lighten their rage against the system that they perceive as responsible for their misery. As I mentioned before, it is precisely this rage that far-right parties such as the French Front National have been so skillful at merchandizing.

In the past days, Tsipras has moderated his position concerning debt relief, presenting a compromise in his demands and to reach consensus. Unfortunately, the Greek creditors have shown much less responsibility: By preliminary ending the Greek bailout and requesting Syriza to renew it by last Friday, the troika forced Tsipras to abide by the same conditions against which Syriza emerged. Taking into account the wave of political extremism that currently looms over Europe, restoring austerity and refusing to give substantial debt relief to a sovereign nation might be the last nail in the EU’s coffin. The EU should notice that demonstrators in Greece are already demanding Tsipras to be more aggressive with the EU. If Syriza fails to meet the demands of its voters, Greek citizens might seek relief in more radical alternatives, such as the increasingly popular neo-Nazi party Golden Dawn.

After the Charlie Hebdo attacks, fearing an increase in Islamophobia, German chancellor Angela Merkel declared that against extremism Europeans can only respond with democracy. Certainly, it would be a mistake to respond to religious extremism with the violence that sets the environment for the appearance of such extremism in the first place. In a similar way, Germany now has the choice between negotiating with Syriza to find a solution of mutual accord or to respond with insensitivity and further oppression. Angela Merkel should not forget that the EU was first established to achieve a collaborative and peaceful future for countries that had suffered immensely at the hands of political extremism. It now has an opportunity to be true to its mission –and the consequences of failure, namely the continued rise of right-wing movement across Europe, could be catastrophic. In the face of political radicalization and nationalistic hatred, Greek creditors now have the chance to decide between seeking consensus and letting the EU project shatter in their faces.