Greek Prime Minister Alexis Tsipras announced his resignation on Thursday and asked Greek voters to decide in a September election whether they support the way he is leading the country out of its financial crisis. Recall, Tsipras took office in January on the promise to stand against austerity, but the stance he took seven months ago has taken a dramatic turn as voters saw him agree to painful state budget cuts in exchange for a $95 billion bailout that has kept Greece in the eurozone.
However messy and dramatic Greece’s debt standoff was, Tsipras’ leadership style offers 4 big lessons in crisis management.
When Tsipras first came on the scene, he was an outlier. He did not come from a political dynasty like some of his predecessors, and his left-leaning Syriza party seemed ill-fitted to the task of tackling the spiraling economic crisis in Greece. But what Tsipras understood was that while the citizens of Greece wanted firm leadership in economic matters, they also wanted someone who would not capitulate to the painful austerity measures demanded by creditors.
Tspiras took advantage of that by highlighting his left wing credentials while simultaneously making promises for robust economic growth. Perhaps it was a little disingenuous, but it was also a politically astute move. He saw an opportunity to rise to power on the back of the crisis and took it. To be fair, he also recognized that despite being a relatively small economy in the eurozone, Greece’s participation in the grand European experiment was critical, and so he could afford to stake his nation’s place in history with some justified confidence.
Make tough decisions
Tsipras fought hard against the ECB, and Germany in particular, on bailout terms for Greece. Even when disaster was staring him in the face due to a massive debt payment owed to the International Monetary Fund and Germany holding firm on debt relief, Tsipras refused to blink. He shut down the banks to contain the damage and put the matter to a referendum, which resulted in 61% of Greeks rejecting the deep cuts that creditors wanted.
Tsipras eventually had to backtrack, but he showed Greeks that their leader had the guts to challenge creditors and wouldn’t bend to the wishes of the ECB without a fight. If nothing else, the public’s backing allowed him to stay at the helm even though many in the ECB would have preferred to see him gone and allowed Greece to save face in the international community. Underpinning this was very likely his belief that ECB members still feared the fallout from a Greek exit from the Euro, no matter how bombastic their rhetoric.
Despite the heady victory that Tsipras enjoyed in the referendum, the reality of Greece’s oversized debt problem and its long-term economic consequences could not be ignored. Political posturing aside, Tsipras was humble enough to realize that an actual Greek exit from the Euro was not a viable option and could result in irreversible damage to the country.
So he reconsidered his position and went back to the negotiating table, eventually agreeing to deeper spending cuts, higher taxes, pension rollbacks, and more financial discipline for the Greek government in exchange for concessions from creditors. The latest bailout deal will be painful, but could set Greece on a road to recovery. It was the only real solution and Tsipras had the wisdom to see that.
Solidify your base
On the face of it, Tsipras’ resignation and announcement of early elections may seem like capitulation, but in reality is a very savvy move. The bruising fight over the bailout has left Tsipras at odds with hardline factions of his own party, who resent his compromise with European creditors, and with a precarious mandate to govern. A new election will enable Tsipras to clean house, consolidate his power once more, and implement the bailout deal.
The expedited timing of the election is not a coincidence either, since Tsipras is probably betting on his current popularity with Greek citizens to get him reelected before any painful austerity measures actually take hold and turn voters off. A later election could produce unpredictable results. If timing is indeed everything, Tsipras’ timing is pretty clever.
S. Kumar is a tech and business commentator. He has worked in technology, media, and telecom investment banking.