Opinion: The Athens Challenge

02/06/2015 - 11h00

Athens is again at the top of the international agenda. On January 25th the Greek general election saw the far-left, radical, anti-austerity Syriza Party, led by Alexis Tsipras (40), win 149 of the 300 seats in the Hellenic Parliament, two seats short of an absolute majority.

Syriza quickly formed a coalition with the far-right ANEL (independent Greek) party, led by the anti-immigrant and anti-German Panos Kammenos (49), who became defence minister in the new Greek government.

The new finance minister, the political economist, Yanis Varoufakis (53), who has dual Greek and Australian nationality, refused to meet the representatives of the so-called "Troika" (the European Union, the European Central Bank, and the International Monetary Fund), and unveiled proposals for ending the Greek confrontation with its creditors by swapping outstanding debt for new growth-linked bonds, running a permanent budget surplus, and targeting wealthy Greek tax evaders.

Yanis Varoufakis, a self described "libertarian Marxist" obtained his PhD at the University of Essex (UK), and became a professor of economics at the University of Athens in 2000. Recently he has been a visiting professor at the University of Texas in Austin.

Dressed in leather jacket, his blue shirt not tucked in, and without a tie, he has been on a high stakes visit to European capitals. In London he met George Osborne, the British Chancellor of the Exchequer, who said after their meeting: "The stand off between Greece and the Eurozone is the biggest threat to the global economy." Voroufakis said that he expected "a deal shortly to put the Greek crisis away once and for all."

But Angela Merkel, the German Chancellor, who is the paymaster in the Eurozone, has already indicated she is unwilling to grant any relief to Greece.

And the German finance minister, Wolfgang Schauble, said: "Whoever understands these things knows the numbers, knows the situation." Voroufakis has appointed Lazard, the US investment bank, to advise on Greece's negotiation on its debt which amounts to more than 175% of GDP.

President Barack Obama said that "you cannot keep on squeezing countries that are in the middle of a depression. At some point, there has to be a growth strategy in order to pay off their debts and eliminate some of their deficits." Most Greeks would agree. As would most Spaniards for that matter.

One thing is certain: Very tough negotiations are ahead between Greece and the Eurozone. Varoufakis is a expert in game theory. But the time for negotiation is short. Both because of raised popular expectations within Greece and because of approaching deadlines under the current Greek bail out agreements.

Greece once before flirted with exiting the Eurozone. The economic consequences are less catastrophic today than they would have been in 2009, when the last Greek debt crisis was at its height. The Eurozone now has more financial mechanisms in place to defend itself. This may well make the hardliners in Berlin and Frankfurt less willing to compromise.

But since 2009 the political dangers of a Greek exit have increased exponentially. The confrontation between Putin's Russia and Ukraine, as well as the continuing conflict in Syria and Iraq, make Greece an inescapable player, not least by reason of its geographical proximity. Russia and NATO are well aware of this. So too of course are the Greeks.