BRUSSELS – For a man long seen as the eurozone’s worst nightmare, Alexis Tsipras has had a smooth first day as prime minister of Greece.
The firebrand left-winger wants fellow eurozone nations to forgive some of his country’s bailout loans, something many European leaders have vehemently ruled out. But concerns of a disastrous confrontation — in which, say, Greece might stop repaying its loans or the eurozone stop funding Athens — eased on Monday after both sides said they were open to negotiation.
The election of Tsipras and his radical Syriza party had been accompanied by much hand-wringing in European capitals. Besides calling for the cancellation of some of Greece’s rescue loans, Tsipras has pledged to undo some of the spending cuts and tax hikes eurozone countries had required in exchange for the loans.
Politicians and investors worried that a tough stance on either side could even lead the country to drop out of the euro, a move that would devastate Greece’s economy and destabilize the currency union.
But while discussions on Greece’s debt have yet to start — and could yet turn sour — the rhetoric on Monday from both sides was one of compromise rather than ultimatums. Financial markets retained their poise.
“It won’t give quite the fireworks that some people were expecting,” said Professor Hendrik Vos of the University of Ghent. Jean-Claude Juncker, the president of the European Union’s executive commission, agreed: “I am not excessively nervous about this.”
That may be an attempt to calm down the political rhetoric before Greece’s new government enters negotiations with its eurozone counterparts.
But at the very least, Tsipras’ election is likely to give new momentum to policymakers in Europe who want the region to focus less on debt reduction, as Germany has insisted for years, and more on spending to get growth going.
The recognition that the region needs more action to encourage growth was highlighted by the European Central Bank’s announcement last week it would start buying 1.1 trillion euros in bonds to stimulate the economy. The European Commission earlier launched a 315 billion euro investment plan.
Greece has since 2010 needed 240 billion euros ($270 billion) in loans from fellow eurozone countries and the International Monetary Fund to avoid bankruptcy.
Those loans came only on strict conditions that Greece cut its debts sharply. It cut spending and raised taxes — measures that had the side-effect of hurting growth. Greece suffered an economic depression and a surge in unemployment to above 25 per cent.
Riding popular discontent over this austerity imposed by the eurozone creditor nations, Tsipras rode to power on a promise to undo some of the painful policies and demand a cut on the rescue loans it owes.
Despite the tough rhetoric, both Syriza officials and eurozone leaders said they were willing to be flexible.
“France will be at Greece’s side,” said French President Francois Hollande.
Jeroen Dijsselbloem, the Dutchman who chairs eurozone finance ministers’ meetings, said that even though “there is very little support for debt write-offs,” there is room to consider ways to make Greece’s debt more sustainable, if necessary.
His views were echoed by the leaders of Belgium and Finland, a country that has long been among the most unmovable on austerity issues.
Regional heavyweight Germany, however, was non-committal beyond stressing that Greece needs to honour its commitments. “Greece is still in the process of building a new government,” said German Finance Minister Wolfgang Schaeuble.
Yanis Varoufakis, a Syriza member who is tipped by some to become the next finance minister, sought to downplay concerns that the new government would take an aggressive stance in negotiations.
He said the government would seek to convince its euro partners that reducing Greece’s debt burden by linking repayments to growth, say, would be positive for all sides. At present, Greece has to repay its loans whatever the state of its economy, further worsening the country’s debt. At over 170 per cent of GDP, Greece’s debt is way beyond levels most economists consider manageable.
He has also dismissed suggestions that Syriza would threaten to pull Greece out of the euro, so-called Grexit.
“We, who happen to be in the eurozone, must be very careful not to toy with loose and fast talk about Grexit or fragmentation,” he told BBC radio. “Grexit is not on the cards; we are not going to Brussels and to Frankfurt and to Berlin in confrontational style. There is plenty of room for mutual gains and benefits.”
Amid the calmer rhetoric, the main stock market in Athens recovered much of its sharp losses of the day to close down 3.2 per cent. European stocks also largely closed higher while the euro clambered up from 11-year lows.
At the height of Europe’s debt crisis a few years ago, the main concerns was that a possible Grexit would spell the end of the euro project as investors looked for other countries to fall out as well. However, many European politicians have said that contagion fear is not applicable now as Europe has built up institutions and financial firewalls to prevent it.
Not everyone in the markets is convinced with that argument.
“Once one country exits, who is to say that more would not follow,” said Neil MacKinnon, global macro strategist at VTB Capital.
Whatever transpires, Syriza’s victory sends a message to European policymakers that voters are rejecting austerity and could bolster other anti-bailout parties, such as Podemos in Spain. It is an election-heavy year in Europe.
Pylas wrote from London. Lorne Cook also contributed to this report.
Raf Casert can be followed on Twitter at http://www.twitter.com/rcasert