Greece in search of a government – can the left defy the EU?

So, Pandora’s Box, full of drachmas, reopened in Athens. Last time, it was the threat of democracy, a quickly withdrawn promise of a referendum on the euro bailout, that was squashed by Germany and France.

This time, actual democracy intervened, catapulting Greece’s hard radical left coalition, Syriza to the limelight. It received a mandate to try to form a new government this afternoon, and promptly declared the EU-Greece negotiation “null and void” and suggested bank nationalisations. The markets responded. Athens stock Market stumbled to a 20-year low last night.

But we all need to understand a bit more about this party, which is not just about a renegotiation of the bailout austerity deal, but admits openly to me planning to use the implied threat of a violent euro departure as a bargaining chip in that renegotiation.

I spent an hour at Syriza HQ, Omonia district of Athens. Its official, Yiannis Bournos told me: “the most efficient negotiating tool we have in our hands is the position of Greece in the eurozone …that’s what we insist we will use in the hard negotiations with the troika”.

The party strongly thinks that the mainstream “pro memorandum” parties (ND and Pasok) failed to use this weapon in previous negotiations. I suggest it is overplaying its hand and the patience of Brussels and Berlin. He argues that Greek exit would cause a domino effect that would lead to the total collapse of the Eurozone. Bournos says that Angela Merkel has admitted this: “After the agreement for 2nd bailout mechanism she admitted that her own campaign of terrorising greek society was false… and would mean the end of the euro”.

Syriza is a coalition of ex communists, ecologists, and feminists. It’s left chic multicoloured emblem represents the red flag of the left, the green flag of the environment movement, the purple flag of feminism (?) and a yellow star. Not a red star of communism but the “yellow star of hope”. It has been in coaltion government before in 1989. For three months. its surge in support came on the back of Greek’s young. It is already number one party in many cities and districts.

Today its leader Alexis Tsipras, hosts talks with the leaders of the two mainstream parties. Ahead of that, he urged them to write to the Troika to rescind the original “barbaric” EU-IMF bailout deal.

This is posturing ahead of a near certain re-run of elections in mid-June. The mainstream parties want to blame him for the failure to agree a government. He blames them for failing to respect the overwhelming vote against the Troika austerity deal.

This is important, because there is a very real chance that Syriza will end up as the largest party in Greece after the election rerun. Due to the oddities of Greek election law, it would then get 50 bonus seats (a law originally designed to offer perpetual power to the two mainstream parties). In fact, Syriza, a coalition, has enacted legal changes so that it could be considered a single party and take the 50 extra seats. Right now it is using, rather smartly, the pulpit offered by its coalition-seeking mandate, to pile pressure on other left wing parties to join its coalition.

At that point we enter no man’s land. The troika deal will be ripped up by a Syriza-led government “the name of the PM is not a fetish for us,” says its officials when I ask to expect if Tsipras could be PM.

And what happens to the next tranche of EU bailout cash? Equally important, what happens to the billions of pounds of European Central Bank funding propping up Greece’s banking system?

One Syriza MP even appeared on radio suggesting Greek bank deposits would be frozen and directed towards investments in creating jobs.

The Greek public are turning to them because for two years they have been told that without harsh austerity, Greece faces ruin. The value of these threats appears to becoming rather numbed, as the medicine itself seems rather ruinous.

Syriza has thought this stuff through.

It genuinely believes there is no mechanism for, say, angry Germans, to kick Greece out of the euro. Further it believes that such a move would be more damaging to the eurozone in terms of contagion to Portugal Greece and Spain. They really think this and are willing to push an almighty and epic gamble.

Greece’s traditional political elite seem to see this as part of a giant game. They will heap opprobrium on the upstart party for failing to join a government. There is some dark talk of pensions and public pay being missed in June ahead of elections.

It’s rather simple to see how this all ends with Greece out of the euro. But as one Greek banker said to me: “it all depends on what exactly you mean by Greece outside the euro”.

My instinct had been that Syriza was overplaying Greece’s likely hand in a renegotiation. That important voices in Germany (ie the finance minister) were on the cusp of letting Greece go earlier this year. Comments from a German member of the ECB board seem to reinforce that. But the Greek left disagrees, and will push this hard. This ratchets up the financial and diplomatic tension. And makes an accident – what the US Treasury Secretary has referred to as a “cascade” of crises, bank runs etc – all the more plausible.

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