EUropean exports may find increased demand due to instability in Greece
The election victory of the anti-austerity party Syriza in Greece, particularly in 2015, marked a significant shift in the country's economic policy, with Greeks voting overwhelmingly against spending cuts and privatizations. This popular rejection of austerity measures imposed by the EU-led Troika (European Commission, IMF, ECB) had the potential to disrupt EU economic policy cohesion, especially regarding Greece's bailout terms and fiscal discipline.
For EU exporters, Syriza’s rise posed several possible impacts. On one hand, Syriza’s anti-austerity stance aimed at ending harsh spending cuts could improve domestic demand in Greece by increasing public spending and raising incomes, potentially boosting imports of goods from other EU countries, benefiting exporters. However, Syriza’s confrontational approach towards the Troika and initial resistance to EU-imposed austerity created political and economic uncertainty. This uncertainty could dampen investor and business confidence in the region, affecting trade flows negatively in the short term.
Syriza’s government also strengthened diplomatic ties with non-EU powers such as China and Russia, notably selling a large stake in the Piraeus Port to China. This international alignment could gradually shift Greece’s trade patterns away from EU-centric networks, potentially reducing EU exporters’ market share in Greece.
Eventually, Syriza compromised by accepting new austerity measures, which limited immediate disruptions but underscored tensions within the EU on economic governance. After Syriza’s decline and the return of more EU-aligned governments in Greece, trade relations with EU exporters became more stable again.
The election victory of Syriza also had implications for the Greek economy. Foreign banks' exposure to the Greek economy has reduced significantly since the crisis, but Greek banks have increased their support from the European Central Bank (ECB) due to deposit outflows. The uncertainty in Greece may weigh down on the euro, with the currency dropping to an 11-year low on the back of the election. Furthermore, Greek bank shares have experienced significant drops this week, with Piraeus seeing a 29% drop, National Bank of Greece 28%, Alpha Bank and Eurobank each experiencing a 22% drop.
In negotiations between Greece and its creditors, debt relief is likely to be a key issue, despite the lenders' apparent reluctance to discuss this issue. IHS senior economist Diego Iscaro predicts that the uncertainty in Greece will have an impact on domestic demand at least in the first quarter. If Greece obtains significant debt relief, there may be calls from countries such as Ireland and Portugal for the same treatment.
However, negotiations between Greece and its creditors are unlikely to be smooth due to Greece's choice of Anel as a coalition partner, which promotes strong anti-bailout and anti-austerity views. If the country fails to reach a bailout agreement, Greek banks might lose ECB support. Many of Syriza's proposals, such as the reduction in the projected primary surpluses, the termination of the privatisation programme, or a cut in the nominal value of the loans given to Greece, are unlikely to be accepted by the lenders.
In conclusion, the election victory of Syriza represented a challenge to EU austerity policies and introduced short-term uncertainty for exporters due to Greece’s political stance and external realignments. While increased domestic spending could benefit EU exporters, the volatility and geopolitical shifts under Syriza could negatively impact trade relations and investment environments in Greece for EU companies. The EU is urged to establish a dedicated unit for export and development finance, and is considering a ban on export credit fossil fuel financing, to support EU exporters in the face of these challenges.
The election victory of Syriza in Greece, with its anti-austerity stance and strengthened diplomatic ties with non-EU powers like China, has raised concerns about potential shifts in Greece's trade patterns, which could reduce EU exporters' market share. The uncertainty resulting from Syriza's political stance and external realignments could also negatively impact trade relations and investment environments in Greece, posing a challenge for EU exporters.
