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These Are the Outlines of a Deal Between Greece’s Leftist Government and Its Creditors

Greece is hurtling toward a confrontation with Germany over its debt, but a solution may be in sight.

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Left-wing European politicians have in the last five years faced an uncomfortable question: Why, in the midst of an economic crisis that has seen the rich get rich and the poor get poorer, have leftists failed to gain elected executive office?

But with Alexis Tsipras’s electoral win in Greece this past weekend, all that has changed, and the continent’s left now has tangible power in hand and a seat at the bargaining table with Europe’s most feared creditors. Tsipras — whose Syriza party won 149 seats in parliament, falling just two short of an outright majority — has now partnered with a right-wing populist group, the Independent Greeks, to form a government.

It is unclear how the parties will share power, and describing Syriza and the Independent Greeks as strange bedfellows is something of an understatement. The socialist, pro-Europe Tsipras now finds himself with a coalition partner in Panos Kammenos, who has advanced the conspiracy theory that airline condensation trails are in fact sprayed chemical or biological agents, an idea known as “chemtrails.” Moreover, Kammenos and his party have also advanced a nationalist, anti-immigrant, often racist line that is difficult to square with Syriza’s open, human rights-friendly politics.

Nonetheless, the two parties agree where it matters most: the need to oppose the imposition of austerity-minded budget policies on Greece, whose social safety net has been devastated as its creditors force it to slash its spending as a way of balancing its budget. The International Monetary Fund has admitted to underestimating the damage measures like cuts in health and education spending would impose on the Greek economy, and Tsipras’s electoral triumph, the first such victory by a staunchly leftist politician in the post-crisis years, represents the culmination of a backlash against dismal unemployment figures and what can only be described as a social crisis in public health, drug use, and homelessness.

To be sure, the Greek economy collapsed in the first place as a result of astounding budgetary profligacy and corruption, and it is that era of excess — underwritten by frequently predatory Western banks — that Greece is now paying off.

Tsipras campaigned on a vague platform of debt reduction and a renegotiation of the terms of Greece’s bailout, but on Monday European politicians rushed to say that they will staunchly oppose any serious write-down in Greece’s outstanding debt, which stands at about 175 percent of its GDP.

“In our view, it is important that the new government take measures so that the economic recovery continues,” German Chancellor Angela Merkel’s spokesman, Steffen Seibert, said Monday. “A part of that is Greece holding to its prior commitments and that the new government be tied in to the reform’s achievements.”

Jeroen Dijsselbloem, the head of the eurozone’s group of finance ministers, was even more blunt. “There is very little support for a write-off in Europe,” he told reporters.

But even as Tsipras’s future negotiating partners stake out hard-line positions, there is little evidence that Europe is barreling head-first toward another economic crisis. In fact, the outlines of a deal between the two partners are already readily apparent. The only real question is whether Tsipras can sell it to his coalition.

Greece’s creditors have already provided the country with some relief in the form of repayment extensions, interest rate reductions, and a decision to return any profits from the loans to Athens. The average maturity of Greek debt — or when the bill comes due — now stands at 16.5 years. That figure compares favorably to other exposed European economies, including Italy, Portugal, and Ireland. Extending maturity would give Greece more time to pay up.

Germany and other creditors could easily extend such concessions further. Tsipras campaigned mostly on a platform of debt reduction, and these proposals would allow him to make a reasonable case of having achieved that goal, though in reality they focus on the cost to Greece of financing its debt.

According to calculations carried out by the Bruegel think tank, further reducing interest rates on current loans, a move it says wouldn’t hurt lenders’ bottom lines, would save Greece 6.4 billion euros, or 3.4 percent of its 2015 GDP. Extending when the loans come due by another 10 years would save Greece 4.5 percent of 2015 GDP. Extending the due date for loans provided by the European Financial Stability Facility by 10 years would save 17 percent of 2015 GDP. Implemented together, these options would save Greece 31.7 billion euros, or 17 percent of 2015 GDP.

But as Bruegel dryly notes, “[A] reduction in the net present value of debt servicing costs does not mean that more money is available now for Greece to spend.” In other words, all it does is reduce the cost for Greece of carrying around a mountain of debt.

Still, one can envision a scenario that’s politically acceptable to European leaders, most notably Merkel, that sees borrowing costs slightly reduced and in which a stimulus package for the Greek economy is cobbled together to help restore the Greek social safety net.

Unsaid in all of this is that the Greek economy has quietly rebounded. Its economy is growing, and the government is running a budget surplus. That does little to do away with its mountain of debt, but it does reduce the impetus for a Greek exit from the eurozone.

The left-wing political project in Europe, then, faces several key tests in the coming weeks. Tsipras’s allies in Spain, the political party Podemos, will be closely watching to see whether Syriza is able to extract financial concessions from Berlin. And if all Tsipras can deliver is marginal concessions on the neoliberal economics that have defined the last half-decade in Greece, his supporters are bound to come away disappointed, and Tsipras may face a crisis inside his own government.

It is these kinds of scenarios that makes the road ahead so treacherous for those who seek to keep the European project intact. But there at least is a road ahead.

Milos Bicanski/Getty Images

Elias Groll is a staff writer at Foreign Policy. Twitter: @EliasGroll

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