Greek voters have had their say, and Europe must now manage the fallout. In coming months, decisions made in Athens, Brussels, and Berlin will determine whether the euro zone slides back into full-blown crisis or if shared investment in a common European future can force compromise. Greece still needs cash. Germany and the so-called Troika–the European Central Bank, the European Commission, and the International Monetary Fund–want to ensure that money loaned to Greece is invested in a sustainable future for that country and its economy.
Sunday’s election delivered a clear message: Greeks have had enough of demands from outsiders, especially Germany, for more austerity and painful reforms. They decisively rejected establishment parties to elect Syriza, a Euroskeptic party of the far left, to form a new government. (How angry are Greek voters? The neo-fascist Golden Dawn came third.) Greece’s current bailout is set to expire on February 28, and Athens will need more money this summer as a critical bond repayment to Europe’s Central Bank comes due.
Tough negotiations are about to begin, and there are grounds for cautious optimism. Greece is highly unlikely to jump (or be pushed) from the euro zone. Syriza knows it can’t afford an economic meltdown. Party leader Alexis Tsipras says he wants to avoid both euro zone exit and default on current debt. He’s willing to negotiate an extension to Greece’s current bailout plan. He also wants balanced budgets as part of his plan for “National Reconstruction.”
In fact, no one with real responsibility for the consequences–in Greece, Germany, or anywhere else–wants the leap into the unknown that would follow a breakup. But getting Athens, Brussels, and Berlin to yes will be an ugly and frustrating process, and even a positive result is unlikely to restore consumer or investor confidence that Europe has regained its footing.
The first problem in Greece is that Syriza’s stimulus plan is expensive, and sagging consumer confidence will make it tougher for its government to raise the money it needs through higher taxes. Investment is on the decline. And Syriza has never held power. The temptation to try to deflect voter anger with tough talk will be considerable, and Syriza’s leaders will learn the hard way in coming weeks that flippant media comments draw serious scrutiny and have dangerous consequences when they come from the party in power.
Across the negotiating table, German Chancellor Angela Merkel is also managing domestic pressure. Last week’s decision from Europe’s Central Bank to begin quantitative easing already has her on the defensive inside Germany, where there is consensus among lawmakers that every European-level bid to stimulate growth relieves pressure on spendthrift governments to enact governance, labor, and entitlement reforms to ensure they don’t need more bailouts in future.
Merkel’s party will push for a balanced budget at home, and as important state elections loom in February and May, she will ask Greece to swallow more medicine. If Berlin and Brussels are seen to give the Greeks too much, Spain’s government, facing elections later this year, may want more breathing room too. Euro-skeptic parties are likewise gaining ground in Italy and France, two countries that are too big to bail.
The bottom-line: Europe is in for a rough ride this year. Germany will demand still more belt-tightening from governments facing voters who have had enough. In the background, British national elections in May will generate more talk of Britain’s exit from the EU. Conflicts in the Middle East will fuel risk of more attacks by Islamic militants in the heart of Europe. Vladimir Putin will continue to push in Ukraine, bolstering support for sanctions that hurt Europe as well as Russia.
For all these reasons, what begins in Greece will be felt across Europe, the world’s largest consumer market–and, therefore, across the entire global economy.