A man holding a placard during an anti-austerity demonstration outside the Greek Parliament in Athens. Photo: Kostas Tsironis/Reuters

Greece and the EU are once again navigating troubled waters caught between Scylla and Charybdis. This drama no longer pertains to mythology but to the reality that Europe is living – a reality full of uncertainty and threats to economic growth.

The victory of the radical left wing anti-austerity party Syriza means that the already unstable governance of the eurozone is again being shaken not just by the chilling rhetoric of Syriza’ leader Alexis Tsipras, but by the obscure strategy of the eurozone leaders on how they will handle this development.

I see four possible scenarios evolving from this difficult situation.

Tsipras is insisting on the partial write-off of Greece’s public debt that today amounts to a staggering 175 per cent of its GDP. In an open letter to the German people, Tsipras argues that when Greece was bailed out by the troika in 2012, the criteria on which they lent them money was fallacious: it was clear from the beginning that good lending principles were discarded; and it was obvious that Greece would never be able to repay that debt and now they should not be blamed for bad lending decisions.

According to Tsipras, the institutional investors that include the ECB, which holds about 80 per cent of Greece’s sovereign debt, should write off half of their bad lending. Understandably, political leaders and taxpayers in other countries who financed these loans do not share this view. The chances of this solution being adopted are slim despite the strong logic that underpins it.

A second option is lessening Greece’s debt burden by renegotiating the terms of the loans granted in 2012 by decreasing interest rates, extending maturities, but not writing off any capital. This would reduce the debt burden, be politically more acceptable to EU leaders and irritate fewer taxpayers in other eurozone countries. This solution would look like a victory of EU pragmatism.

Quite honestly, this solution would just be another session of ‘kicking the can’ or – as admitted by Tsipras – no more than a continuation of the ‘extend and pretend’ strategy that gives some short-term relief to mediocre political leaders, but leaves the governance of the eurozone in shambles. Yet, it seems that most EU leaders are hoping that this would be the less painful scenario for them.

It was clear from the beginning that good lending principles were discarded

A third option is for Greece tobe forced out of the eurozone. Understandably, the great majority of Greeks do not want the drachma to replace the euro. But they also say that they have had enough restructuring pain. Some political and economic decisions being taken by the new Greek government in the first days of their rule make a Greek exit from the euro a distinct possibility.

By endearing itself to the Russians, the Greek administration is likely to irritate the other EU leaders who resent Russian interference in the Ukraine. Moreover, when Tsipras reversed some privatisation decisions and re-employed hundreds of Greek workers in the public service, he signalled that structural reform was not high on his agenda.

A fourth option could be a combination of the easing of the debt burden of Greece by renegotiating the terms of current loans, and generous and substantial handouts to Greece for investment through the EU budget. This would be fudging par excellence – an art that has been perfected by EU politicians.

With this solution the EU would gain some more time but it would have no guarantee that this would not inspire other distressed countries to ask for similar generous handouts. It would also not guarantee that countries like Greece would in fact deliver the structural reforms needed to put their economy on a sound basis. It would be no guarantee that corruption and political patronage would no longer weaken southern European economies.

Many know the solutions to the eurozone’s governance weaknesses that are affecting its economic prospects. But there is not the political will or courage to make the changes needed. The solution to the eurozone’s troubles must be based on improving competitiveness in the southern European states, stimulating growth thorough increased public and private expenditure, and promoting more prudent debt and deficit management.

The dynamics of these solutions often oppose each other. But as long as the eurozone continues to be a conglomeration of states with a common currency but with an imperfect monetary union, and independent fiscal and economic regimes, the eurozone will falter and economic growth will never be robust and evenly spread.

johncassarwhite@yahoo.com