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End of austerity in the EU?

Christoph Hasselbach / gruJanuary 29, 2015

Just as austerity advocates say reforms are bearing fruit, fears are growing in northern Europe that parties imitating Greece's Syriza may threaten the consolidation consensus. Is the EU about to reject austerity?

Griechenland Protest 15.07.2013
Image: picture-alliance/dpa

Many European governments see Alexis Tsipras' electoral victory in Greece as an accident - and a very serious one at that. When the leftist Syriza alliance campaigned in the previous elections in 2012, European heads of state and government with different political leanings like Christian Democratic Chancellor Angel Merkel, Socialist French President Francois Hollande and at the time independent Italian Prime Minister Mario Monti had warned against Syriza.

Yet Hollande and Monti had turned their backs on European budgetary consolidation policies that felt like austerity measures imposed on them by Germany. Under the circumstances, they could have seen Tsipras as an ally. But to them Tsipras initially appeared too radical, and their countries are also among Greece's creditors. Rome and Paris fear, as do many other money-lenders, that Greece will not pay back its debts.

"Commitments have been made and now must be delivered on,“ Hollande said as a precaution after the outcome of the Greek elections.

Marking a new course

Tsipras immediately announced the end of austerity and he not only wants to halt reforms but also reverse them. Nonetheless, Janis Emmanouilidis, an expert on Greece at the Brussels think tank European Policy Centre believes there "is room for compromise.“ The new government's "false start" will lead to the "understanding that some things go too far" and ultimately result in long and difficult negotiations on the terms of debt repayment.

And despite all denials in Berlin and Brussels, many politicians can indeed imagine some debt relief for Athens. According to Emmanouilidis, the continuation of the basic agreement on loans in return for austerity and reforms will depend on what "Syriza has to offer." If Tsipras, for example, in his dealings with oligarchs or in his battle against tax evasion can contribute something that goes beyond what his predecessors have offered, "then a compromise is possible in the end," Emmanouilidis said.

Merkel und Hollande Streit um Europapolitik
Merkel and Hollande have had differing opinions on austerityImage: Getty Images

Many think their hour has come

But this is not just about Greece. What troubles stability-oriented countries like Germany is the prospect of a wider European wave of protest that could throw out an arduously created consensus on finance policy. The new left-wing party in Spain Podemos (We can) is also hoping to win in parliamentary elections this autumn. Podemos is leading the governing People's Party and the Socialists in opinion polls. A movement based on the Syriza model is also forming in Portugal.

Italy and France -both led by socialist governments - have offered only reluctant support for austerity and have often tried to avoid reforms. They could use the Greek election as an "excuse to make compromises in austerity policy,“ Emmanouilidis said.

Yet the consensus is not only threatened by the political left but also by the political right. In France, Marine le Pen from the National Front has picked out statements made by the new Greek coalition government to suit her purposes, including the assertive Greek stance towards Brussels as well as sympathy for Russian President Vladimir Putin's politics. Italy's Lega Nord sees it the same way. The Muskovite paper "Nesavissimaya Gazet" is already cheering, "The new Greek government could become the most important outpost of resistance to anti-Russian sanctions in the EU."

Irland Steuern Graffiti
Deciding exactly who should pay what isn't likely to be scratched from the agenda anytime soonImage: picture alliance/empics/Niall Carson/PA Wire

Austerity bears fruit

Ironically, the consensus on financial austerity policies could be at risk now that they have been bearing fruit. The Spanish and French economies are growing again. Portugal could already leave the bailout program. Ireland is even more successful and is showing fantastic growth figures. No Syriza-like movement is anywhere in sight there.

Even in Greece things are picking up. Again, the interesting case is France. After long hesitation, the government in Paris finally tackled some reforms that deserved to be recognized as such, even though economic figures have as bad as ever. Paris started pursuing Berlin's course much later than the others.

But Emmanouilidis said he thinks the effect of the election outcome on European politics is "not as great as some people may assume," adding that Greece is a special case within the EU because of the gravity of its problems and the necessity for change processes.

He rejected calling the election a "turning-point" for Europe. To start with, it is much too early to predict the new government's success or failure. Furthermore, the Syriza victory is significant for domestic policy, but its effects on the European level will be minimal, he said.