21 August 2015

Peterson Institute: A Greek Election that Should Strengthen Tsipras’s Hand

Greek voters will be going to the polls on September, this time to elect a new Parliament in the wake of the €86 billion bailout accord with European creditors. But the most likely outcome for this election will be to strengthen Tsipras’s hand in carrying out the tough terms of the bailout.

While some political uncertainty always surrounds elections in countries in economic crisis, these elections are most likely to provide political continuity, return Tsipras to power, and help put the country on a path toward a stable economic recovery.

Holding elections right after the crucial payment to Greece by the European Central Bank (ECB) on August 20, Tsipras will face voters when the darks days of July are still fresh in their minds but before they feel the full economic effects of the austerity measures dictated by the bailout agreement. The timing also gives less than a month for the left-wing rebels inside Tsipras’s ruling Syriza coalition to break away and form their new anti-austerity party. [...] Tsipras is on his way to getting 30 percent of votes in this election, turning Syriza into a center-left party that could dominate Greek politics for the foreseeable future.

The first European Stability Mechanism (ESM) review of Greece’s progress in carrying out its program is scheduled for October, but it is likely to be postponed, providing time for Tsipras to ask for backing from Greek voters to secure maximum debt relief from Greece’s creditors. His high personal approval ratings make it likely he will succeed. By dangling promised debt relief before voters, he is in a good position to challenge opponents on the left to present an alternative strategy to achieve that result. Knowing that most Greeks oppose leaving the euro, the defectors on the left will have trouble articulating a more successful strategy. [...]

The delay of the first review of the ESM program is not likely to upset euro area members. Politicians all, these leaders recognize the need for Tsipras to seek a renewed mandate following his huge policy U-turns. With the first very large tranche of €26 billion already under way for Greece, the ESM program is moreover structured (perhaps intentionally) in a manner so that no immediate financial risks for Greece will emerge from a slight delay for the first program review.

In fact, euro area leaders need Tsipras, rather than the mainstream opposition, to win, completing the transformation of Syriza and its leader into a more malleable mainstream center-left party in Europe. The euro area would thereby prove that its political framework can withstand the populist challenge from their own far-left and far-right extremes. With Tsipras as the best guarantor for implementing the new program, mainstream opposition support can be taken for granted in Greece. Only Tsipras can deliver a two-thirds vote in Parliament for the economic overhaul that Greece needs. Like Richard Nixon going to China, Tsipras, the one-time pariah of the European project, can lead the way to keeping Europe whole in the future.

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Related article: POLITICO - From bailout to ballot box

© Peter G Peterson Institute for International Economics