Will Greece Leave the Euro?


by Kathleen Taylor

The election of anti-austerity party Syriza illuminated disappointment in Greece toward Europe’s management of the economic and financial crisis that has stymied the eurozone since 2008. The crisis quickly brought Greece’s economy to the brink of collapse. Greece’s public debt soared and the country received bailouts from the European Commission, European Central Bank (ECB), and International Monetary Fund (IMF) in an effort to prevent further despair.

In return for the bailouts, Greece was forced to adhere to strict austerity measures, such as cuts on public spending and steep tax increases, policies that are unpopular with the Greek people. As a result, Alexis Tsipras, the leader of Syriza and Greece’s new prime minister, campaigned on promises to reduce Greece’s debt. Currently, its debt is 175 percent of its gross domestic product even after bailouts, totaling more than $300 billion. Despite this fact, Mr. Tsipras believes that austerity is a disaster for Greece and for Europe.

A possible Greek exit, a scenario that seemed more plausible in 2012, has again come into play. While the exit is gaining attention in the international media, Mr. Tsipras does not want Greece to leave the eurozone. Geopolitically, the country would become a “pariah in international markets.” Economically, if Greece were to surrender its membership in the eurozone, the country would likely face severe economic problems that it is not prepared to manage. Politically, it pits Greece against Germany and other “eurozone rescuers,” intensifying the political polarization that has engulfed the eurozone. Syriza’s goal is not to leave the eurozone, but to employ a “more spending and less debt” strategy, to which Germany and other European countries that require the austerity measures will never agree. These disparate views will bring Greece into conflict with its international creditors, especially Germany.

The recent elections have provoked apprehension throughout Europe that Greece’s departure from the eurozone is becoming a legitimate possibility. As Europe’s strongest economy, Germany was the mastermind behind the austerity measures and assumed a leadership role. In line with Germany’s policies, EU officials are continuing a hardline strategy with Greece in hopes of keeping both the country and the eurozone out of further economic crisis. If an exit were to occur, the EU would be left holding Greece’s debt, causing more tension and further economic struggle for other member states. Europe’s biggest fears from a Greek exit, or “Grexit,” are potential instability and the danger of contagion. The risk of contagion brings about concern that other eurozone countries with similar economic problems, such as Portugal, Ireland and Spain, would follow suit. Ultimately, Germany and the other euro countries worry that the Greek election will “plunge the country, and Europe, into deeper crisis.” They also dread the likelihood that more right-wing, anti-austerity, and eurosceptic parties will gain more popularity throughout Europe, further destabilizing the continent. Thus, the ramifications of the Grexit would be profound for the European Union. 

While the austerity measures in Greece are highly detested and the Greek people elected a left-wing, anti-austerity party, the financially fragile country will not leave the eurozone. The stakes for Greece are too high, as the country is not prepared for economic independence. The Grexit would also be disastrous for Europe as the EU would assume Greece’s debt. Instability due to the rise of anti-austerity—and increasingly Eurosceptic—parties could ensue in a region that is heralded for its neoliberal ideas of economic and political cooperation. Given the evidence, it does not appear that a Greek exit from the eurozone is in the cards—at least anytime soon.

Photo: John D. Carnessiotis/Flickr/Altered

Kathleen Taylor is a staff writer for Charged Affairs with Young Professionals in Foreign Policy. She is based in the Washington, DC Metro Area.