Could Syriza's win really herald Europe's move to a softer form of austerity?

Charles Grant says there is a window of opportunity for Greece's new prime minister to renegotiate, however staunch the German resistance to softening austerity might appear.

Syriza’s victory creates a great deal of uncertainty for the eurozone. It could possibly lead to Greece’s ejection from the euro, an event which would have unfathomable consequences for its partners. With a bit of luck, however, the Greek general election will lead to a softening of the EU's current focus on austerity.

It is true that the German government does not want to see this kind of softening. The German political, financial and business establishment is convinced that the only policies required to solve the eurozone’s ills are fiscal discipline and structural reform. They are impervious to Keynesian criticism of such policies, believing that the Anglo-Saxon recipes for growth are short-termist and will in the long run lead to excessive levels of debt, and an endless boom-and-bust.

Nonetheless, although the Germans dominate eurozone policymaking, with their Dutch and Finnish allies, even they are sometimes forced to compromise. A few months ago the European Commission allowed France and Italy more time to lower their public-sector deficits to 3 per cent of GDP. And last Friday the European central bank unveiled an €800 billion programme of quantitative easing, to generate some eurozone inflation – against German opposition.

So, if Alexis Tsipras presents moderate demands and shows himself to be a man one can do business with, Germany may feel obliged to agree to a renegotiation of Greece’s debt burden. France and Italy will be urging it to do so, and behind the scenes both the US Treasury and IMF are likely to be pushing the Germans to acknowledge that the Greek electorate cannot be ignored. A possible compromise would be for Tsipras to commit to a package of structural economic reforms – including attacks on oligarch privileges, which the Samaras government was unwilling to undertake – in return for a reduction of the debt burden (through lower interest rates, maturity stretch-outs or write-offs) and softer targets on budget deficits in the coming years.

Such a negotiation will be extremely difficult for Germany. Its politicians will be constrained by the state of public opinion, which is very hostile to any idea of transfer payments to the south. They have failed to explain to the German people that the euro benefits their country enormously, and that some generosity to Greece is a small price to pay for these benefits. In this the SPD has been rather spineless: many of its leaders understand that excessive austerity in the eurozone has been counterproductive, but they are too timid to say so in public.

Ultimately, however, the Germans will have to realise that their current view of Europe contains contradictions. They think of themselves as good Europeans and believe that their economic success gives them right to lead the eurozone; but at the same time, they seek eurozone policies that maximise the immediate economic interests of Germany rather than of the eurozone as a whole. The Syriza victory may help them to understand that leadership carries responsibilities.

Charles Grant is director of the Centre for European Reform.