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Europe’s Anti-Austerity Contagion

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At the height of the euro-zone crisis in 2011–12, governments in Greece, Spain and other cash-strapped countries were given enormous bailouts in exchange for pledges to enact reforms and accept painful austerity. A few years later, progress has been made, but voters in those countries are growing tired of economic misery. In January a radical left-wing party won elections in Greece by promising an end to the pain: Syriza says it will write off most of Greece’s $363 billion worth of debt and defy further demands for austerity.

Some in Europe have begun to fear that Syriza’s defiance will embolden similar movements in other countries, fatally undermining all that has been accomplished. Podemos, a left-wing anti-austerity party in Spain, has already posted huge gains in opinion polls. A Podemos government could join Syriza-led Greece in refusing calls for more sacrifice. Voters in Italy and France might then join the protest. That would spell an end to the euro–and perhaps to the E.U.

This isn’t likely to happen. The so-called troika–the European Central Bank (ECB), the European Commission and the International Monetary Fund (IMF)–and Germany, the biggest contributor to Greek bailouts, have a great deal of leverage. They have the money Athens needs to keep the lights on, and for all of Syriza’s demands for concessions, everyone involved knows that absent a negotiated deal, Greece will default on its debt, and its economy will collapse. Polling suggests that Greek voters want an end to austerity, but strong majorities also want to remain within the E.U. and keep the euro. Syriza will have to cave.

Podemos is now telling voters what they want to hear, but Syriza will demonstrate that those things aren’t true. Spain’s unemployment remains well above 20%, but the country’s economy is now growing faster than the European average. On election day this fall, few voters will want to import Greek-style turmoil. That’s good news for the future of the euro zone.

But the over-the-top demands of Greece’s new leaders suggest they might not recognize that they’re fighting a war they can’t win. If Syriza overplays its hand, it could generate enough scary headlines to provoke a national banking crisis ahead of critical repayments to the IMF and ECB. If the Germans and the troika are too complacent to offer Syriza a face-saving way to back down, they could join Syriza in stumbling into a debt default that would force Greece out of both the euro and the union.

Once that precedent is set, no one knows where it might lead.

Foreign-affairs columnist Bremmer is the president of Eurasia Group, a political-risk consultancy


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[This article consists of an illustration. Please see hardcopy of magazine or PDF.]

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