THE BLOG
11/02/2015 04:52 GMT | Updated 12/04/2015 06:59 BST

What Grexit Means for Brexit

The Greek debacle tempts us to speculate a little further on what will happen if David Cameron is allowed to continue in office as prime minister after the British general election on 7 May.

Syriza, a radical party of the left, won the Greek elections on 25 January with 36% of the vote. Its leader Alexis Tsipras fought an overtly populist campaign in which he converted domestic discontent at economic austerity into a carefully calibrated attack on the European Union. While rejecting any idea of Greece leaving the euro, Tsipras also avoided any recognition of the fact that the Greek economy, mismanaged by Greeks for decades, has been saved from bankruptcy by EU bail-outs. Greece has received loans of over €140billion from the European Financial Stability Facility, bilateral loans of €53billion from Greece's fellow eurozone member states (many of which are themselves experiencing rigid austerity), and €25billion from the IMF. In addition, the European Central Bank bought €27billion of Greek government bonds.

None of this surfaced in the election campaign. Instead, there were pledges not to meet the obligations of the conservative government of Antonis Samaras, defiant rhetoric aimed at Brussels and Berlin, and threats of referenda. In this eurosceptic climate, the popularity of Syriza grew far beyond disaffected ex-socialists to embrace younger middle-class voters for whom the promise of change at the expense of the current Greek and European establishment seemed a likely punt. Traditional nationalists were moved by the promise of resistance to the imposition of German rules on Greek culture - and were rewarded with seats in the new coalition government.

Hours after forming his government, Tsipras and his modishly dressed finance minister Yanis Varoufakis embarked on a tour of chosen EU capitals. Yet the air of student union politics is deceptive. The four leaders courted directly by Tsipras - Matteo Renzi, François Hollande, Nicos Anastasiades and David Cameron - each have their own quarrels with EU orthodoxy. All four are themselves in a fiscal pickle and love to talk about the need for EU 'reform'. Only once the media had been engaged by the travels of the tie-less Greek duo was Varoufakis sent to Berlin (5 February), that bastion of fiscal conservativism, where finance minister Wolfgang Schaüble was left to play the role of bad cop. The Merkel-Tsipras meeting has yet to be arranged.

Less economics, more politics please

What are we to make of all this? First, the popularity of Alexis Tsipras has risen at home. Second, despite the bombast, very few of Syriza's demands for debt relief are acceptable to Greece's creditors: there will be no quick haircut. The troika of European Commission, European Central Bank and IMF, which Varoufakis holds in contempt, will continue to operate for the moment as the EU's interlocuteur valable for the conduct of EU economic policy in bail-out states. As a miffed Jeroen Dijsselbloem remarked on his ill-judged trip to Athens (30 January), the 'European debt conference' demanded by Varoufakis indeed already exists in the form of the Eurogroup which Dijsselbloem chairs.

And despite entreaties from Varoufakis at his meeting with Mario Draghi (4 February) that the ECB softens the terms of its loan agreement, the ECB promptly refused to accept any more Greek government bonds as collateral, leaving it up to the Greek national bank to arrange liquidity for Greece's troubled banks under the aegis of the EU's new Single Supervisory Mechanism. Meanwhile, the markets have reduced Greek debt to junk status, and capital continues to flow out of the country.

More of the reality of EU banking and fiscal policy will impinge upon Yanis Varoufakis at the emergency Eurogroup meeting this week (11 February). He should not be disheartened. He is a clever economist, and his proposal to restructure Greek debt in long-term growth-linked bonds, if applied to the eurozone as a whole, would change the dynamic positively for both creditors and debtors. This reform, supplemented by Jean-Claude Juncker's European Fund for Strategic Investment and Mario Draghi's QE, should help drag Europe away from stagnation.

However, the euro will remain at risk and Europe's economic recovery weak until more fundamental issues of governance and the rule of law are addressed. For all its chutzpah, Syriza has not yet squared up to the argument that only a progressive mutualisation of debt and the creation of a political union will restore the European Union to its original purpose. It is really the modesty of the new Greek government's economic proposals and their narrow national focus that surprises. Only when these Greek economists learn more about the politics of the EU and its constitutional order will they be in a position to trigger truly radical reform. When it comes to federal union, as it surely will, Alexis Tsipras and Angela Merkel will have plenty to talk about.

As for the British, who are about to enter into their own version of a populist election on an anti-European thesis, there are lessons to learn from Greece. The Conservatives are radicals of the right. They threaten an immediate renegotiation of the UK's terms of EU membership followed by a referendum in 2017. Their agenda for 'reform' is paper thin, ill-judged and narrowly British. Like Greek politics at their worst, British politics risks European disintegration. The UK's EU partners should prepare themselves for a fight. Should the Tories win the election, get ready for a flurry of ministerial flights to carefully chosen European capitals - although The Hague, Copenhagen, Stockholm and Budapest are the more likely locations for Cameron and Osborne. Watch how the British ties come off, and the gloves go on.

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Andrew Duff's new book 'Pandora, Penelope, Polity: How to Change the European Union' is now out.