A member of the European Commission recently admitted that the European Union "doesn't like new faces." This confession underscores the extent to which the Continental establishment is struggling to cope with the emergence of new political players that propose a substantial change of direction in Europe's policies. Whether European officials like it or not, the left-wing Syriza party's recent victory in Greece will force them to deal with the eurozone's first anti-bailout government. More important, it will force the European leadership to choose from a limited number of options — all of which could lead to unintended consequences.
Syriza's victory is making waves in Spain, where the Podemos party is also campaigning on its promise to renegotiate Spain's debt. Spanish politicians fear that a successful government in Greece could boost Podemos' popularity and put an end to Spain's traditional two-party system. Madrid will hold general elections in late 2015, facing the prospect of joint support for the mainstream parties falling below 50 percent for the first time since Spain's return to democracy in the late 1970s. The same thing happened in Greece in 2012, the last time traditional parties were successful in elections.
While the Spanish government is worried about political events in the final quarter of the year, governments in northern Europe have more immediate concerns. Germany's case is particularly sensitive: Berlin is still digesting the bitter pill that is quantitative easing, the measure that the European Central Bank approved Jan. 22 despite warnings from the Bundesbank and the German establishment. German chancellor Angela Merkel built an electorally successful narrative according to which German taxpayers' money would not be squandered on governments that fail to apply reforms. Another renegotiation of Greece's debt would further weaken this narrative.
Writing off a portion Greece's debt would have financial repercussions in Germany — 80 percent of Greece's debt is owned by the European Central Bank and Eurozone governments — but Berlin is more worried about the political repercussions of such a move. Germany fears that giving in to Greece's demands would weaken Berlin's leadership of the European Union. On the homefront, Merkel is for the first time dealing with opposition from the right, with the Alternative for Germany party threatening to steal votes from her Christian Democratic Union party. The country has two conflicting goals: to preserve the eurozone but also to protect its national wealth. Countries leaving the eurozone would threaten the first goal, but having countries in southern Europe demanding debt renegotiations and the introduction of fiscal transfers from Europe's core to its periphery would threaten the second.
The European Commission is trapped in the middle. Officials in Brussels are willing to offer Athens an extension on the maturity of its debt, a reduction on interest rates and more flexibility in the pace of economic reform, though these offers will probably not be enough to permanently solve Greece's debt problems. More important, they may not be enough to appease the Greek voters and members of Syriza who want Athens to completely break away from its lenders.
The leader of Syriza, newly elected Greek Prime Minister Alexis Tsipras, is similarly constrained. After his victory in Greece's Jan. 25 parliamentary elections, he proclaimed the end of austerity in Greece and the end of Greece's lenders influencing Athens. Tsipras campaigned on the promise of more public spending, for which Athens does not have the money. He is basically counting on the fact that the European Union does not want the eurozone to lose any members and that Brussels will give in to his demands for restructuring Greek debt. If the new government goes too far and is inflexible in the negotiation, Greece would run the risk of being expelled from the currency union, something that most Greeks oppose.
These conflicting interests and constraints put decision-makers across Europe in a position where none of the options on the table are good. If Greece gets what it wants and its debt is renegotiated, countries including Portugal, Ireland and Spain could demand the same. If Athens and Brussels were to reach an agreement that gives Greece longer maturity periods and lower interest rates for its debt while allowing Athens to reverse some of the recent austerity measures, the move would send voters across Europe the message that supporting protest parties such as Podemos or France's National Front would not be as catastrophic as mainstream parties want them to believe. Finally, if the European Union maintains its hard stance on Greece, the country would face the possibility of a disorderly default and exit the Eurozone — a political defeat few in the EU establishment want to see.
Eurogroup head Jeroen Dijsselbloem will meet with Tsipras in Athens on Jan. 30. The Greek prime minister will then meet his counterparts at an EU summit on Feb. 12. These events will allow both parties to begin testing the waters before the start of formal negotiations. Greece will probably not get everything it wants, and the negotiations will be long and frustrating for both parties before they reach a deal. Regardless of what happens with Greece, the European crisis has reached a point where anti-establishment parties are in the position to access power. Some will lead governments while others start as coalition partners. One thing is clear: The European Commission will see a growing number of "new faces" in the coming months and years.
