EU may have to compromise to 'keep' Greece

The European Union is closely monitoring the political situation as well as developments in the Greek financial markets.

If the left-wing anti-austerity Syriza party wins the upcoming presidential election, Greece's European partners will likely have to compromise with the new Greek government to avoid the possibility of the country leaving the eurozone, a bad precedent for the entire region.

Greek people are tired of the government's austerity policy (AP Photo)

Since 2010, Greece has avoided bankruptcy thanks to two international bailouts worth $240 billion. But the country has had to pay the price by implementing a strict austerity plan as required by the troika of creditors including the European Union, the International Monetary Fund, and the European Central Bank.

The austerity plan has left Greeks weary and voters are likely to vote for the opposition party Syriza in the January 25 election.

A Syriza victory would destabilize financial markets and threaten Greece with a eurozone exit because its leader, Alexis Tsipras, has pledged to abandon austerity, ending years of deep budget cuts and breaking commitments to creditors.

Speculation about the risk of Greece leaving the Eurozone increased when last weekend the German Mirror magazine reported that the German government, the country with the largest economy in Europe, had changed its stance, ready to accept Greece's "departure" if Greece did not meet its commitments in the bailout packages.

However, on January 7, German Chancellor Angela Merkel issued a statement downplaying the possibility of Greece leaving the eurozone, but stating that Greece needed to continue its austerity program. This was the first time the German Chancellor had spoken out since the information was published in Mirror magazine.

Speaking at a joint press conference in London with British Prime Minister David Cameron, German Chancellor Merkel said: “I think it is necessary to make it clear to the people as well as the financial world that I and the German government have always pursued a policy for Greece to stay in the eurozone and that is also the commitment between Greece and the troika of creditors. Greece and the member states of the European Union must comply. The Greek people have really sacrificed a lot, many Greek people have gone through very difficult years. We share and support Greece on this path. I always keep in mind that these efforts will bring results. On the one hand, the Greek people need to make efforts, on the other hand, we always stand side by side and stand in solidarity with Greece.”

German officials say the chances of Greece leaving are extremely low but have raised the possibility that creditors may have to negotiate a bailout with Syriza if it wins the election.

A complete debt forgiveness for Greece is unlikely, but easing lending conditions for the new Greek government is on the table. Greek voters are not currently interested in leaving or staying in the eurozone, believing the current economic situation is already dire. Yesterday, the yield on 10-year government bonds rose above 10% for the first time in 15 months, as investors sought to sell off ahead of the Greek election.

Many experts believe that the Greek crisis this time is unlikely to spread to the entire eurozone because even if it wins the election, the Syriza party will be forced to change its tough stance towards creditors.

The sign is that Syriza’s leader has softened his stance by no longer threatening to unilaterally stop debt repayments if Syriza comes to power. Moreover, since the last Greek debt crisis, the Eurozone has established many “lines of defense” such as the European Stability Mechanism.

However, the key issue is political. The victory of the Syriza party in Greece will open a wave of anti-austerity economic policies in other European countries, such as Spain and Ireland. That is why Europe is anxiously waiting for the Greek election and may have to compromise to "keep" Greece./.

According to VOV