EVER since the euro crisis erupted in late 2009 Greece has been at or near its heart. It was the first country to receive a bail-out, in May 2010. It was the subject of repeated debate over a possible departure from the single currency (the so-called Grexit) in 2011 and again in 2012. It is the only euro country whose official debt has been restructured. On December 29th the Greek parliament failed to elect a president, forcing an early snap election to be called for January 25th. The euro crisis is entering a new, highly dangerous phase, and once again Greece finds itself at the centre. Investors promptly swooned, with the Athens stockmarket falling by almost 5% in a single day, bank shares down by even more and Greek 10-year bond yields rising to a new 2014 high of 9.5% (over seven points above those for Italy). The reason for this collective outbreak of nerves is that the polls point to an election win for Syriza, the far-left populist party led by Alexis Tsipras (pictured). Although Mr Tsipras says he wants to keep Greece in the euro, he also wants to dump most of the conditions attached to its bail-outs, ending austerity, reversing cuts in the minimum wage and in public spending, scrapping asset sales and seeking to repudiate much debt. Such a programme seems, to put it mildly, to sit uncomfortably with Greece’s continuing membership of the single currency.

The early election is likely therefore to create a political crisis in Greece. What happens beyond that is less clear. Investors seem to be betting that the people of Italy, Spain and France will peek at the chaos in Athens, shudder—and stick to the austerity that Germany’s Angela Merkel has prescribed for them. But that seems too sanguine to this newspaper. It is hard to believe that a Greek crisis will not unleash fresh ructions elsewhere in the euro zone—not least because some of Mrs Merkel’s medicine is patently doing more harm than good.

The Greek kalends

Begin with Greece. For 14 months Syriza has been ahead of the ruling New Democracy party of the outgoing prime minister, Antonis Samaras, in the polls. Although the economy is now growing again, Greek voters remain understandably enraged that GDP should have shrunk by almost 20% since 2010 and that unemployment is still as high as 26%. As it happens, Syriza’s poll lead has narrowed in recent weeks, but even if Syriza does not win an outright parliamentary majority, it is likely to be by some margin the biggest party, so Mr Tsipras can expect to lead any coalition government that is formed after the election. And this time round Mrs Merkel will struggle to repeat the 2012 trick of asking Greeks to vote again in the hope that they might produce a more sensible government.

In its policies Syriza represents, at best, uncertainty and contradiction and at worst reckless populism. On the one hand Mr Tsipras has recanted from his one-time hostility to Greece’s euro membership and toned down his more extravagant promises. Yet, on the other, he still thinks he can tear up the conditions imposed by Greece’s creditors in exchange for two successive bail-outs. His reasoning is partly that the economy is at last recovering and Greece is now running a primary budget surplus (ie, before interest payments); and partly that the rest of the euro zone will simply give in as they have before. On both counts he is being reckless.

In theory a growing economy and a primary surplus may help a country repudiate its debts because it is no longer dependent on capital inflows. But the Greek economy still has far to go to restore its lost competitiveness, and Mr Tsipras’s programme would undo most of the gains of recent years. The notion that EU leaders are so rattled by fears of Grexit that they would pay any price to avoid it was truer in 2011 and 2012 than it is now. The anti-contagion defences that the euro zone has since built make Grexit easier to contemplate. Much has been done to improve the euro’s architecture, with a new bail-out fund, the European Central Bank’s role as lender of last resort and a partial banking union. Moreover, most of the bailed-out and peripheral countries are at last growing again, and unemployment is starting to fall.

Greece in graphics - a guide to the country's upcoming elections Europe’s Lehman moment? The result is a game of chicken that neither Greece nor Europe can afford. Even if the Grexit is safer, it is still perilous and unpredictable. There was a worrying echo this week of the Lehman crisis of September 2008. Then the widespread assumption was that the global financial system was robust enough to cope with the failure of a single investment bank. Now investors are putting their trust in the resilience of unemployment-plagued countries like France, whose president has record levels of unpopularity, and Italy, whose economy has shrunk in constant prices in the first 14 years of this century (even Greece’s GDP is higher now than it was in 1999). That stagnation points to the deeper reason for caution. The continuing dismal economic performance of the euro zone now poses a big political risk to the single currency. In the short run, so long as creditor countries (and that means principally Germany) insist only on budgetary rectitude and reject all proposals for further monetary and fiscal stimulus, that performance seems unlikely to improve. Worse, inflation is now so dangerously low that the euro zone threatens to tip into years of deflation and stagnation worryingly reminiscent of Japan in the 1990s. The continent’s leaders have largely failed to push through the structural reforms that could make their economies more competitive. When voters see no hope, they are likely to vote for populists—and not just in Greece.