Athens plots a daring escape from the troika

Syriza is as radical as any party to take power within the eurozone. Hardly any of Greece’s new cabinet have experience of government; predictably, its first week was studded with chaotic interventions, including a clumsy blunder into EU-Russian relations. Syriza’s rhetoric is still more suited to a university seminar than a serious programme of government.

To some on Europe’s northern fringe, just to meet Syriza is to crumble before blackmail. If you believe half of his past rhetoric, its leader Alexis Tsipras plans to dance wildly on the crumbling edge of the eurozone, to scare its thriftier members into accepting his demands. These would include debt repudiation, the unravelling of structural reforms, and rehiring thousands more civil servants. On this account Syriza would return Greece to the failed clientelism of the past and embolden anti-austerity parties everywhere.

Many EU leaders would rather take their chances with “Grexit” than cave in to threats, even if this risked a deeper eurozone recession. But as Yanis Varoufakis tours European capitals to win support for a new deal, Greece’s finance minister deserves a full and even sympathetic hearing.

Syriza’s ascent to power highlights the reality that although the debate about Greece is couched in highly technocratic language, it is in essence thoroughly political. Most Greek debts are owed to other EU states. It is their governments that would carry the consequences of Greece defaulting or leaving the eurozone. This provides the best rationale for Mr Varoufakis’ refusal to deal with the “troika” of the European Central Bank, European Commission and IMF, and instead talk directly to national politicians.

He may also be right to query the technical expertise of the troika. The IMF has already admitted to having been too optimistic about Greek growth. More debt should have been restructured. The impressive progress made towards cutting Greece’s fiscal and trade deficits is mostly an automatic consequence of the collapse in domestic demand and living standards that brought Syriza to power.

Moreover, what merit there may be in the troika’s emphasis on “structural reform” has proven patchy in implementation. Greece certainly has too many over-regulated industries and outdated practices, and a long tradition of overmanning the public sector. It was right to assume that Greek governments would need external impetus to change, and its creditors are quite entitled to resist the reversal of reform that Syriza has called for.

But what matters more to the reform of the economy is the continuing dominance of an oligarchic class. This includes a banking sector with over 40 per cent of loans non-performing, according to the IMF, which drags on industry. A vigorous recovery may require a thorough banking recapitalisation that converts debt into equity and replaces management. Under the troika’s tutelage, very little was done to confront the oligarchs, or to tackle endemic tax avoidance. Syriza should be able to make more progress, simply because it has not yet acquired the deep ties with wealthy interests that bind the traditional parties.

A fresh look at Greece’s predicament argues for co-operation on both sides. There, Syriza needs allies if it is to take on the oligarchs, restructure its banks and develop a modern system of tax collection. Its European partners must recognise that this is not a simple creditor-debtor relationship in which a concession to one side is a loss to the other. At 175 per cent of gross domestic product, Greece’s debt burden is too high for normal repayment and can be worked off only if the country enjoys sustained growth. The EU is massively invested in Greece. Its negotiating stance must make growth the top priority.

This points towards linking debt repayment to Greek GDP. As well as providing Athens with the breathing space needed for reforms to take effect, such instruments explicitly align EU incentives with those in Greece. With a fair wind the creditors may even garner a higher return over the long run.

Some of Syriza’s other ideas smack of student radicalism. The reason EU member states should talk with Messrs Tsipras and Varoufakis is that within its idealistic platform may be enough sensible radicalism to sketch out the outlines of a deal. If Syriza can be helped towards implementing the good parts and shelving the bad, Greece may have a brighter future.

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Letter in response to this editorial:

IMF has not admitted to any forecasting error / From Peter Doyle