‘Grexit’ may not be a word that many have heard before, but it has become increasingly more discussed in the past couple of days. A Grexit, or a Greek exit from the Eurozone, is what may happen now that Greece has elected a new prime minister who wants to cut back on austerity measures and to renegotiate Greece’s debts.
On Sunday January 25th, Alexis Tsipras, the head of Greece’s left wing Syriza party, was elected Prime minister. Tsipras gained widespread popularity throughout Greece because of his promises that he would drastically reduce the austerity measures that have led to recession and high levels of unemployment throughout Greece. The measures, which resulted in the GDP shrinking 19% since 2010 and in unemployment rising to 25%, have not significantly contributed to the reduction of the national debt, which has risen—Greece’s debt as a share of GDP is now 176%.
Tsipras even went further in his proclamations, directly challenging the “troika” of the three main bailout lenders, the European Commission, the European Central Bank, and the IMF, that he does not intend to agree with them. This will definitely spark future debate, and it’s not the only issue in which Tsipras and his party have a strong stance. The Syriza party also strongly condemned the EU’s calling for broader sanctions on Russia because of their alleged involvement in the Ukraine crisis, going so far as to issue a formal complaint to EU foreign policy chief Federica Mogherini.
Even though Tsipras and his promises are certainly controversial, they have yet to cause widespread panic among the people of Europe. As BBC editor Robert Peston states, there are two reasons why panic has failed to become prevalent. One less-likely explanation is simply the belief that the Eurozone would be stronger without Greece. More probable is the idea that people believe that Greece will be given a write-off for its debts. The second situation would allow Greece to climb out of its hole of massive debts, something that would not happen if Tsipras didn’t get his way. If the debts remain and the economy continues to grow at its annual growth rate of 1.6%, it would take more than a generation to get Greece’s debt to a level that’s even manageable.
The need for write-offs in Greece’s debt seems more obvious than ever, but it’s questionable whether Tsipras and his party will be able to convince the troika and other important players to write-off their debts. If they can reach an agreement, it will open a door for other anti-austerity parties, in countries such as France and Spain, to gain popularity and to also attempt to renegotiate their debts.
It’s unclear what the future of Greece will be. If they have to leave the Eurozone and revert back to their old currency of the drachma, they will be taking an enormous risk and will have to wait and see if it pays off. However, if Greece can reach an agreement with the Eurozone, they will set a precedent that countries have a right to default on some of their loans, something which is highly unlikely to sit well with the “troika” and other bailout lenders. Either way, the election of Alexander Tsipras and the rise of his left-wing party mark a new era for Greece, one that hopefully leads the way to more prosperous times.
Ashrita Rau is a freshman majoring in International Relations.