Europe's Austerity Moment Is Ending

The apparent victory of the far-left Syriza party in Greece is the latest signal that the continent's economic philosophy is changing.

Cameramen and photographers work under a pannel displaying exit poll results in Athens, January 25, 2015.  (Marko Djurica/Reuters)

Voting in Sunday's much-watched Greek elections has ended, and exit polls suggest that the far-left Syriza party has captured nearly 40 percent of the vote. While this may not be enough to ensure a parliamentary majority in Greece's electoral system,  it's now clear that Alexis Tsipras, a fiery 40-year-old once considered too radical for national politics, will lead the next Greek government. Tsipras has promised to end Greece's "austerity program," a series of spending cuts and tax hikes designed to reduce the country's enormous bailout debt, which equals 175 percent of its GDP. Freed from this burden, Tsipras argues, the Greek government will implement policies to generate economic growth.

Since the 2008 financial crisis, Greece has endured an extreme version of the troubles plaguing Europe as a whole. One in four Greek adults do not work, and the unemployment rate for the country's youth exceeds 50 percent. The black market is estimated to comprise half of Greece's economic activity. More than 200,000 have voted with their passports and emigrated. Given these conditions, the appeal of Syriza—once considered a fringe leftist party—has grown markedly.

Tsipras' victory presents the troika—a consortium consisting of the European Central Bank, the European Commission, and the International Monetary Fund—with a series of unappetizing options. If the troika gives in and writes down Greek debt, then other, larger countries—such as Spain—will have an incentive to negotiate a similar deal, triggering a major financial headache in Brussels and Frankfurt. If the troika refuses, then Greece is likely to default on its debt obligations this year and be forced to exit the eurozone—a fate that neither Tsipras nor the European leadership say they want.

Either way, the events in Greece signal that Europe's long, failed experiment with austerity is cracking. In addition to Syriza, anti-austerity parties have grown popular in Spain, where opinion polls show Pablo Iglesias' Podemos with 20 percent support. And Euroskeptic parties gained heavily in last year's European parliament elections, particularly Marine Le Pen's National Front Party, which has campaigned against fiscal austerity in France. The economist Joseph Stiglitz estimates that post-2008 global financial crisis has cost the European economy an estimated $6.5 trillion, and even countries with a reputation for fiscal probity—such as Germany—have struggled.

The European Central Bank has finally gotten the message. Alarmed at the prospect of deflation, bank president Mario Draghi announced on Thursday that the ECB will launch a quantitative easing program that will inject 1.1 trillion euros into the European economy over through next September. The stimulus may not come in time to help Greece, which is excluded from participation in the bond-buying program until July. But if nothing else, the decision to implement quantitative easing is a tacit admission from Europe that the once-radical messages espoused by parties like Syriza have for now, at least, entered into the mainstream.