Syriza, TINA and the trilemma
Markets were calm last Monday. The extreme left party Syriza’s victory in the Greek general election was “well anticipated” and hence “priced in.” Now, however, tough negotiations, even psychodramas, are inevitable, since the aspirations of Syriza and the Greek people seem to contradict the claims of Greece’s creditors. We had already a foretaste during this week with the announcement of the government – much more hardline, than what was anticipated – and Greece questioning the new sanctions of the European Union against Russia.
After the election, left-leaning commentators quickly hailed Alexis Tsipras, the new Greek prime minister, and his victory speech: “Greece is leaving behind the austerity that led to destruction. […] The verdict of the Greek people indisputably cancels all the programs of austerity.”
Right-leaning commentators countered by echoing the grim words of German Finance Minister Wolfgang Schäuble, uttered a month ago: “Greece must stick to agreed economic reforms regardless of the results of the election. […] These tough reforms are bearing fruit; they have no alternative. […] New elections change nothing…”
In my view, such verbal sparring is part of the game. Participants enter the negotiation ring with extreme positions (“we want a clean slate” versus “there is nothing to negotiate”), but soften their tone in the ensuing tussle. Some European politicians are already conceding that Greek debt maturity might be extended and the interest burden lowered.
But until an agreement is reached, markets may face volatility triggered by the noise of negotiators. Complete forgiveness of debt is out of the question, and even a partial one is unlikely at least for now. The share of Greek debt held by the International Monetary Fund (IMF) is non-negotiable. The IMF has always recouped the funds it lent to crisis countries. The share of Greek debt held by the European Central Bank (ECB) is also difficult to renegotiate. It is illegal for the ECB to finance governments. This said, since the beginning of the euro crisis, many ECB rules have been stretched to the limit – the recent quantitative easing program being the latest example.
The share of Greek debt held by Eurozone governments is the portion most likely to be discussed. There are political risks in this, however, both in the peripheral countries for whom Greece is an example to follow, as well as in the European core, where such a “deal” could boost far-right, anti-European parties.
The attitude that, “the Greek election changes nothing at all, there is no alternative (TINA) to the path previously negotiated” bears its own political risk. At the core of the euro crisis there is a trilemma (which is a dilemma, where instead of two, you have three options. You can chose two of them, the third is then a given): sovereign nation-states, the euro and political democracy cannot flourish together. At least one of those three concepts must yield.
If nation-states retreated, we would see a Federal Republic of Europe: a democratic, integrated Europe with common fiscal, economic and social policies – still utopian for now. If the euro dissolved, the Eurozone might also, with all the entailing disruption. So far in the euro crisis we’ve experienced the worst case of the trilemma: independent nation-states trying to share the euro as a common currency and employing politics that affront the will of the people. Hence, democracy strikes back.
That Syriza won in Greece and that now in every European country anti-Eurozone and anti-establishment political movements from rightist and leftist extremes are gaining traction are the consequences of TINA. “There is no alternative”, which is repeated like a mantra by traditional European politicians, contradicts the essence of democracy.
There is always the alternative to change politicians who pretend that there is no alternative, unless a regime becomes authoritarian. Many European politicians are complaining that Greece shouldn’t have been in the Eurozone in the first place. I would agree with that. But Greece’s membership has crassly unveiled the flaws inherent in the common currency system. Since 2009, Greece has been the Eurozone’s economic laboratory on how to fix (or not fix) the euro. Since last Sunday it has also become its political laboratory.