Election at risk of becoming a Greek tragedy

Country ought to revel in recent success rather than consider turning back

In a column I wrote a few weeks ago I congratulated Greece on its first positive annual GDP reading, an estimate of 1.6 percent, last year after six years of recession. The country has every good reason to bask in the heritage of its culture and in its fantastic location geopolitically, and it really has no reason to be an economic laggard.

Another piece of good news in recent days was that the eurozone has been expanded to include Lithuania - even as European leaders have continued to be preoccupied with lifting their countries out of recession, largely in vain.

But as is often the case, good news is accompanied by bad.

The massacre of 12 people in the Paris offices of the satirical magazine Charlie Hebdo and the hostage-taking and killing of four people elsewhere in the city a couple of days later has put Europeans on high security alert. These terrorist acts have also raised questions in many countries about immigration and about foreign policy.

On top of that, two events of an orderly nature - elections - threaten to exacerbate the EU's economic woes following the two recessions many countries have gone through since 2008.

The first of these elections will be held in Greece on Jan 25, and polls now suggest that the far-left party Syriza will take the reins of government. Its leader, Alexis Tsipras, has raised the specter of Greece quitting the euro zone unless the EU and the International Monetary Fund agree to loosen austerity measures that have made the lives of many Greeks a misery over the past several years. There was persistent talk of a Greek exit three or four years ago, and now that possibility again looms large.

The snap election has rocked Greece's finances and shaken the euro zone, and the country's finance minister, Gikas Hardouvelis, has told The Wall Street Journal that about 3 billion euros ($3.5 billion) worth of deposits have left the banking system over the past two months.

The danger is that should Syriza indeed win the election, the country's financial fortunes could again plummet - with no help from credit ratings agencies, the media and of course the market.

Fortunately, Tsipras has begun to soften his tone, saying no unilateral decisions will be taken to announce an immediate default on the country's debt.

That reassurance may be soothing enough to reduce market fluctuations. In recent years the value of the euro has dropped sharply compared with the US dollar and that has helped European exporters, but it also produces intense pressures elsewhere. Last month the huge fall in the cost of energy took the EU into the deflation zone.

Even if the EU manages to successfully juggle Greece's political uncertainties, those of Britain may need to be managed over a longer time if Prime Minister David Cameron's Conservatives win elections in May and go ahead with a referendum by 2017 on the country's EU membership as they have promised.

The Treaty of Lisbon gives member states the right to quit the EU through constitutional procedures. Quitting the euro zone is another matter, and is not specifically covered by law, but it seems that if any euro zone member quits the EU, that would be tantamount to also abandoning the euro.

Given that the British election is still four months away, the main preoccupation at the moment is Greece's fate. Looking beyond the electoral rhetoric, it may be that Syriza does not really want to pull the country out of the euro zone, realizing that in staying the advantages far outweigh the disadvantages.

Syriza knows full well that the threat it is now brandishing is highly popular with voters, as are its promises to increase social spending, something a public heartily sick of belt-tightening is delighted to hear. But keeping such promises is another matter altogether.

If there is a debt default in Greece, investors would flee, and there would be a run on the banks. The economy would descend into chaos that could spill over into the global economy. Greeks would once again be left to languish in economic torpor, and a Syriza government would quickly lose public confidence.

In fact, Greece has no choice other than to follow the path it is now on. Mediocre leaders and poor governments have made a habit of hiding the economic truth, supporting corruption and being lax with fiscal supervision. Massive reform is needed to spur economic growth instead of increasing social spending.

This is the pain Greeks must endure, with help from international creditors. And in another five years, once efforts to repair the country's economy, including taxes, have delivered success, social spending could be increased.

If Greece cannot properly handle the austerity measures it needs, my fear is that the current success will be brought to naught and that the country will once again descend into recession.

The author is China Daily chief correspondent in Brussels. Contact the writer at fujing@chinadaily.com.cn