Thousands of supporters of Greece’s left-wing Syriza party celebrate in the streets of Athens as party leader Alexis Tsipras claims victory in the Greece 2015 election.

 

The left-wing Syriza party’s victory in the Greek elections on Jan. 25 has renewed speculation about the uncertain future of the new government, which has promised to roll back austerity measures.

Many analysts believe that the election results have increased the risk of a Greek exit from the eurozone, a scenario referred to in financial circles as “Grexit.”
 

Daniel Gros, director of Centre for European Policy Studies, wrote in his commentary that “nobody officially wants Grexit,” including Syriza. The party is primarily asking for a reduction in Greece’s official debt and an end to austerity.

The German government also does not favor Grexit because European unification remains the central project for German policymakers across all mainstream parties. Only some protest parties and vocal economists think Greece would better off with a new drachma.

Alexander Dobrindt, the former executive secretary of the Christian Social Union of Bavaria, said that Greece’s exit would be a possible long-term alternative for Europe and for Greece itself. “We have created a situation that gives Greece a chance to return to stability and restore competitiveness,” Dobrindt said, “But I still hold that, if Greece is not able or willing to restore stability, then there must be a way outside the eurozone.”
 

However, some other scholars contend that Grexit would be far more costly because the new currency would result in depreciation, which would further lead to deposit flight out of the eurozone and market turbulence. This would damage the Greek economy, the effect of which would be felt in the economies of the eurozone and the world.
 

Greece has received constant help from the European Union throughout the course of its recession, but this time, they are exercising caution in distributing aid. The European Union also hopes that the new Greek government could revitalize the country through reform. After all, previous reforms Greece made under pressure from the European Union were not that radical or effective and failed to challenge the interests of higher-income groups and oligarchs, so inequality increased and social conflict was the result.
 

In the foreseeable future, tensions could grow between Greece and the European Union in negotiations about the relaxation of austerity measures and debt reduction. This could possibly disrupt the market, said Wu Huiping from Tongji University in China.
 

Eirini Karamouzi, a lecturer from the University of Sheffield, said that in light of the uncertainty over whether or not the European Union will continue to extend financial aid as it did in the past, the Syriza party should try to tackle its internal debt, which will be a tough task.
 

Because ingrained habits cannot be reversed overnight, the Greek economy will not recover in the near term, so the nation will remain passive in terms of foreign policy, which presents another challenge for its new government, Karamouzi said.
 

Wu said that the disadvantages of  Grexit are quite apparent. For one, economic weakness carries with it great unknown risks. The threat of exit is more of a tactic for the election and a bargaining chip to haggle with the European Union. However, staying in the eurozone will not solve the long-term problems.
 

The austerity measures and structural reform will be hard to implement after the elections. The possible friction between Greece and the European Union in debt reduction negotiations may once again make  Grexit seem to be the only viable stopgap measure. If so, the result could be unrest in financial markets, Wu said.
 

“According to the past experience of European debt crisis, the two will finally come to a compromise with a solution,” Wu said. “The European Union may provide Greece with more bailout funds, though it would possibly insist that Greece implement the structural reform to create economic growth and reduce unemployment.”

 

Hou Li is a reporter from Chinese Social Sciences Today.