Debt threat

The Greek Myth

Greece needs some major reconstruction work.
  • Why it matters

    Why it matters

    Greece’s left-wing Syriza party has vowed to enforce a debt haircut or stop paying back money if it wins national elections, a move that could lead to Greece leaving the euro zone.

  • Facts


    • Syriza is a radical left party that is currently topping polls ahead of elections on January 25th.
    • Greece owes foreign lenders €257 billion ($306 billion).
    • The country’s national debt is currently at almost €322 billion.
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Alexis Tsipras is feeling powerful. If Syriza, the alliance of radical leftists he is leading in Greece, wins the parliamentary elections on January 25 and forms a government, as it is likely to do, Mr. Tsipras plans to put an end to the austerity program.

He expects creditors to waive the lion’s share of Greece’s national debt. Mr. Tsipras plans to spend the money saved from serving the debt on increased pensions, new public service jobs and social niceties such as free health insurance.

The former Greek finance minister, Giorgos Papakonstantinou, used to say that he who is in debt is no longer free. Mr. Tsipras believes the opposite. He believes that who is in debt is powerful. He likes to elucidate this with an illustration. If you owe €500 to a bank, you have a problem; if you owe €500 million, the bank has a problem.

If it were only that simple, the future Prime Minister Tsipras would actually have the very, very long end of the lever in his hand. Greece’s national debt is currently at almost €322 billion ($383 billion).

If you owe €500 to a bank, you have a problem; if you owe €500 million, the bank has a problem.

Almost €257 billion ($306 billion) of it is accounted for by public lenders such as the European Financial Stability Facility and the European Stability Mechanism, the International Monetary Fund, the European Central Bank, the national central banks and bilateral credits of individual euro countries.

Mr. Tsipras wants to put a pistol to the heads of these creditors. Either they grant a cut in debt or Greece will stop paying interest and making debt repayments. This was decided at the Syriza party congress.

The leaders of Syriza think that the lenders will cave in out of fear of losing everything and plunging the euro zone into a new crisis. But this isn’t going to be the case.

Mr. Tsipras needn’t bother even going to the IMF and the ECB with his demands since their statues do not allow a debt write-off.

The potential for extorting the European Union is also much lower than Mr. Tsipras believes. In contrast to three years ago, the euro zone now has instruments to avoid a damaging chain reaction. In addition, other problem nations such as Spain, Portugal, and Ireland are apparently improving.

Greece is no longer relevant to the system. Which is why no one is impressed by Mr. Tsipras’ threat to pull the whole 19-member euro zone down into the maelstrom of Greek national bankruptcy if the lenders don’t write off its debts. The “Grexit” has lost its terror. Europe no longer needs to be afraid of Mr. Tsipras.

But the Greeks should be. The high-risk game the leaders of Syriza are playing could very quickly result in Greece being left without the euro. If the aid loans dry up and the country can no longer refinance itself on the capital market, then Mr. Tsipras will have to print money and that money can only be drachmas.


The author is Handelsblatt’s Athens correspondent. To contact the author:

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