The potential outcomes of Syriza's win

On the 25th of January, Greece had an election and this was won by the far-left populist Syriza party led by Alexis Tsipras. He demands a big cut in Greece's debt and promises more public spending, going against austerity measures set by Angela Merkel, Germany's chancellor. After the euro crisis five years ago, the euro-zone countries in the south have continued to suffer from stagnant growth and high unemployment. With deflation setting in, the debt burden will rise despite fiscal austerity. Therefore, when policies failed to work, it was no surprise that we saw Greek voters flocking to the opposition.

A good solution can be reached to benefit both Greece and Europe. Mr Tsipras is correct that austerity in Europe has been excessive. Austerity policies have had negative results in Europe and caused deflation to occur. The fact that the European Central Bank (ECB) introduced quantitative easing (QE) reinforces this. Mr Tsipras is also correct in saying that Greece's debt is unpayable despite tax increases and spending cuts. The debt has risen from 109% to a whopping 175% of GDP over the past six years. However, Mr Tsipras is wrong to neglect reform in Greece. He aims to introduce a large rise in the minimum wage, abandon privatisation and to rehire 12,000 workers in the public sector. This will reverse Greece's progress into improving competitiveness.

The Economist magazine proposes that Mr Tsipras rejects his insane socialism and to carry out structural reforms in return for debt forgiveness. This can be achieved by either pushing the maturity of Greek debt out even further or by reducing its face value. Besides that, he could get rid of the protected oligopolies as well as cracking down on corruption. This mixture of macroeconomic easing with microeconomic structural reform would provide a good model for other euro-zone countries such as Italy and France to follow. On the other hand, this may not happen because Mr Tsipras might be an extreme left-winger and as it is, Mrs Merkel is finding it difficult to accept the current QE plans. The result of this could be Grexit where Greece withdraws from the eurozone.

This can have catastrophic consequences. In Greece alone, it would lead to banks going bankrupt, onerous capital controls, an even further decline in income, an unemployment rate that is even higher than the current 25% rate and Greece's potential exit from the European Union. There will also be a knock-on effect on the rest of Europe where doubts will arise about whether countries such as Portugal, Spain and even Italy should stay in the euro.

Thus the most likely outcome is a temporary compromise however, it is unlikely to last long. In the event that Mr Tsipras does not manage to get debt relief, he will lose credibility and support from Greek voters. But even if he wins small improvements in Greece's debt situation, other countries will probably resist. Bail-out terms changes have to be voted on in some national parliaments and if they are passed, it could lead to voters in Spain and Portugal demanding an end to austerity. Populists from the right and left wing in France and Italy who are against not only austerity but also EU membership may gain stronger positions.

What's worth mentioning is the technical problems associated with this. Any impasse can cause a run on Greek banks because the ECB cannot give emergency liquidity to Greek banks or buy up its bonds unless Mr Tsipras' government is in an agreed programme with creditors. This can be prevented by stretching out maturities. But that may be too little for Mr Tsipras and too much for Mrs Merkel.

It is difficult to see how the single currency would be able to survive if Mrs Merkel continues to obstruct reforms to stimulate growth and to get rid of deflation in the euro zone. She will cripple the European economies and will bring about a lost decade that is even worse than the Japanese economy in the 1990s. That could lead to a populist backlash similar to the one seen in the recent Greek elections.