Greece Gives 'Populists' the Heave-Ho

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Alex Tsipras officially became Greece’s ex-prime minister on Sunday, when his Syriza Party came a distant second to New Democracy. The former leftist firebrand and his comrades took just 31.5% of the vote, while their center-right competition got 39.7%—enough for a Parliamentary majority, according to Greece’s election rules. So out goes Tsipras and in comes Kyriakos Mitsotakis as the new prime minister. This election’s significance for investors doesn’t have much to do with Greek stocks. Rather, it is a sneak peek at populism coming full-circle—an example of why we think fears of a disruptive populist pandemic miss the mark.

Greece was the first eurozone nation to get a populist government. During the debt crisis’s first several years, the traditional center-left (PASOK) and center-right (New Democracy) parties traded leadership. As the country’s fortunes sank throughout two defaults and two bailouts, voters became disillusioned with both, as well as the “troika” of bailout authors and creditors: the IMF, ECB and European Commission. This gave populists an opening, which Tsipras seized to thrust his rag-tag far-left group—known by the Greek acronym for Coalition of the Radical Left—into the spotlight. He built a large following by agitating against the troika and mainstream politicians for years, and in an early 2015 election, Syriza won enough seats to form a coalition with the far-right Independent Greeks. Investors freaked, fearing this radical government would Grexit and splinter the eurozone.

It almost happened. Tsipras and his first finance minister, a motorcycle-riding Bruce Willis doppelgänger and “libertarian” Marxist named Yanis Varoufakis, spent their first few months refusing to compromise and threatening to tear up all of their predecessors’ commitments to austerity and privatization. But markets forced their hand, sending Greek borrowing costs skyward. That became problematic when it was time for Greece to repay some maturing bonds and didn’t have cash. Tsipras bought time at first by stiffing the IMF, but that lifeline soon expired, forcing negotiations on a third bailout in July. The deal they settled on included all the things Tsipras had campaigned against, including public sector cuts and privatizations. So to save face, Tsipras put it to the people in a referendum and campaigned against it.

Conventional wisdom at the time said a “no” vote defeating the bailout would mean certain Grexit—while a “yes” would spell the end of Tsipras’ leadership, letting him ride off into the sunset. Several leaks and unnamed sources suggested this was his preferred outcome, and most presumed it was also the likeliest. But when the results were in, “no” had won, making Tsipras temporarily triumphant against Brussels. A populist’s dream!

That night, however, reality set in. Greece still needed money. The troika was still the only place to get it. Tsipras decided to reverse course. Varoufakis resigned. Negotiations resumed. Tsipras won a few token concessions, allowing him to claim a small victory, but the final terms largely resembled what voters rejected. He pushed them through Parliament, tanking his popularity in the process, and then set about making good on his promises to Greece’s creditors. During the next few years, this radical leftist made more headway on privatization than all his predecessors combined, trimmed the public sector and met most austerity benchmarks. In exchange for this good behavior, the troika agreed to some modest long-term debt relief, giving Tsipras his biggest win. He even wore a tie in celebration—the one and only time he did so as prime minister—to make good on an old bet.

From then, he largely faded from international headlines until earlier this year, when he and the leaders of the nation now named North Macedonia agreed to settle a decades-long naming dispute. The firebrand was now an international statesman, nominated for the Nobel Peace Prize. But it cost him his last shred of popularity at home, making his defeat this weekend a foregone conclusion.

Tsipras’ leadership was a four-and-a-half-year journey from populist upstart to a reformer whose policies were centrist in practice, if not in marketing. He didn’t quite seize the opportunity to become the Ronald Reagan or Margaret Thatcher of Greece, but he came a lot closer than any of his centrist predecessors. Now, as Syriza departs from government, it is the primary center-left opposition. Voters, meanwhile, went back to the middle as well, flocking to a Harvard-educated former banker who is about as establishment as they come. It is a near-perfect example of how “revolutions” go: Eventually, they revert to the old order.

We won’t stick our necks out and call this a blueprint for, say, Italy over the next four years. But we think it is noteworthy that while frustrated voters are generally willing to give populists a chance, once said populists prove to be not much different from any other politician, the shine wears off. The opportunity for “change” then comes from the old order—they become shiny and new again. It is the story of every democratic change of government ever, just with more colorful characters.

Mind you, we don’t think populism is a huge risk in the here and now, either. Tsipras and Syriza illustrate this, as well—for all their talk, they didn’t accomplish that radical agenda. The system forced their hands. Italy’s populists have already bucked up against that same system. That is, when they aren’t fighting each other, which seems to occupy most of their time. Infighting and institutional gridlock are strong bulwarks against radical change.

So the next time headlines claim this or that populist party is a risk for markets, remember Greece. Remember Syriza’s great moderation and ultimately calm reign.