Geopolitical Risks

Are Greece’s Lenders Playing with Fire?

Tsipras and Putin Reuters
One man's joy is another man's sorrow.
  • Why it matters

    Why it matters

    • Greece’s geographic location in south-eastern Europe makes it a vital strategic asset.
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  • Facts

    Facts

    • Greece’s EU and NATO membership have made it an important strategic asset for the West.
    • Russia and Greece have cultural and historical ties going back centuries.
    • Washington fears Russia could attempt to divide the West by seeking closer ties with Greece.
    •  
  • Audio

    Audio

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Greece has long been at the very center of the world’s civilization. The land of Aristotle, classical literature and democracy, may now be an economic minnow: a peripheral European country buckling under a financial crisis, but geopolitically, it still punches way above its weight.

That is something European Union leaders will undoubtedly have at the back of their minds this week when they make a decision on its euro zone membership.

The country accounts for just 2 percent of the euro zone economy, but it also shores up the south-eastern flank of the European Union. It is the one stable anchor in the volatile Western Balkans region, where Russia is seeking to increase its influence. It also inches out into a Mediterranean that is increasingly fraught with problems and risks, from a mass movement of desperate refugees fleeing conflicts in Syria and elsewhere, to the threats of terror attacks via the failed state of Libya.

If Athens is cut adrift from the euro zone this Sunday at the final make-or-break summit, a bruised, isolated and disillusioned Greece would be of major concern not just for Europe but for its NATO allies, including the United States.

On Tuesday night, after the inconclusive E.U. summit of leaders in Brussels, Donald Tusk, the European Council president, took pains to highlight these risks.

“Our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system. And for sure, it will be most painful for the Greek people,” he said at a late-night press conference.

“I have no doubt that this will affect all Europe also in the geopolitical sense. If someone has any illusion that it will not be so, they are naive.”

The leaders should have not just the economic but also the geopolitical risks in mind when they ultimately decide if Greece can access a third bailout or be the first country forced to leave the common currency, argues Ian Lesser, security and foreign policy expert at the German Marshall Fund of the United States.

“There is a concern ... that a Greece adrift from its European moorings will move closer to Russia and that Russia will take advantage of this situation in Greece to increase its influence.”

Ian Lesser, German Marshall Fund of the United States

“The non-financial risk aspect has been under-discussed among observers but also at the official level. It needs to be front and center because there really are geopolitical risks,” he told Handelsblatt Global Edition.

Not only would a Grexit indicate a failure of the European project, showing that euro membership is reversible, as well as risk financial and economic contagion, it could destabilize a country that has formed a vital part of the E.U.’s regional strategy.

Meanwhile, the United States is particularly alarmed at the prospect of an unstable Greece, a key NATO ally, as well as the risks to the euro zone economy, the European Union and the global economy.

“From the point of view of trans-Atlantic relations, simply having Europe troubled by this crisis is not helpful in terms of Europe’s role in the world,” said Mr. Lesser. “It affects Europe’s energy for external policy, it affects Europe’s credibility. From the point of view of Washington this is not good news to have a protracted, or badly ending crisis.”

NATO maneuver pa dpa
NATO muscle play – still effective if the periphery crumbles? Source: DPA

 

On Tuesday President Barack Obama called both the German and Greek leaders to urge them to reach a compromise that would keep Greece in the euro zone, a sign of just how much the White House wants a deal.

In particular Washington is worried that Greece could turn to Russia at a time of animosity between Moscow and the West over the Ukraine conflict and Russia’s annexation of Crimea last year.

There are fears that the Russian president, Vladimir Putin, could try to use Greece as Trojan horse to divide the E.U. consensus on sanctions imposed for its support of separatists in eastern Ukraine.

“There is a concern, it’s probably greater in Washington than it is Europe, that a Greece adrift from its European moorings will move closer to Russia and that Russia will take advantage of this situation in Greece to increase its influence,” said Mr. Lesser.

Greece and Russia have ties that go back centuries, with a common Orthodox religion and strong historical links. Russia also played a key role in Greece’s fight for independence from the Ottoman Empire in the 1820s.

The Greek prime minister, Alexis Tsipras has sought to forge closer ties with Russia, visiting Moscow twice since taking office.

The morning after last Sunday’s referendum, Mr. Putin was one of the first world leaders Mr. Tsipras spoke with.

This flirtation has so far yielded little apart from some energy deals.

“It’s a mistake on their part to assume that Putin would deliver materially for Greece,” said Mr. O’Brennan.

After all Russia, hit by sanctions and other economic problems, is hardly in a position to devote any significant aid for Greece. “There are no resources,” for any money for Greece, Russia’s deputy finance minister, Sergei Storchak told Reuters last month.

And for all Greece’s flirtation with Moscow, it is unlikely that most Greeks see their future outside of the European Union, even if it leaves the euro zone.

“I would be skeptical to see too much influence of Russia on Greece,” said Julian Rappold of the German Council on Foreign Relations in Berlin. “There is still a very strong Western orientation in Greece.”

“On the one hand they feel sympathy for Russia but also they feel very European. I do not see that a Grexit would ultimately bring about a shift toward Moscow, because there is not so much that Russia can really offer to Greece.”

Yet Russia can still profit from the chaos in Greece, argues John O’Brennan, an expert on the Balkans at Maynooth University in Ireland.

“They have tried to feed off the Greek crisis, the aim is to divide the E.U. states as much as possible, that is the aim of Russian policy toward Greece and there also in respect of trying to hive off the Western Balkan states from the E.U. perspective,” he told Handelsblatt Global Edition.

“I do not see that a Grexit would ultimately bring about a shift toward Moscow, because there is not so much that Russia can really offer to Greece.”

Julian Rappold, German Council on Foreign Relations

A Grexit would be a blow to the bloc’s already tarnished standing in the region, in particular on countries like Serbia and Albania who harbor hopes of eventual European Union membership.

“There’s a real fragility in the region and Greece’s problems make things infinitely worse,” Mr. O’Brennan told Handelsblatt Global Edition, pointing to the recent clashes and political crises in Macedonia, and to Bosnia, which he says is “still a failed state.”

The Greek crisis has already had an impact, by diminishing remittances that many migrants from the Balkans had sent home from the country before massive unemployment hit that source of income for the region.

Meanwhile, Greece along with Italy is already struggling to deal with the impact of the huge rise in migration into Europe, and its capacity to deal with this would be greatly impacted by bankruptcy and a euro exit.

Greece and Italy form part of the European Union’s external border along the Mediterranean and have been at the frontline, dealing with the tens of thousands of desperate migrants making the dangerous journey across the ocean from North Africa to reach Europe’s shores.

Refugees in Greece PA Scanpix denma
Greece might be on the verge of bankruptcy, but for refugees it’s still a place of hope. Source: Picture Alliance/Scanpix Denma

 

Last week the United Nations refugee agency, UNHCR, said that 137,000 had made the journey to southern Europe in first half of 2015, an 80 percent increase on last year’s figure. It also noted that there was a shift in migration routes with more people attempting to reach Greece via Turkey.

“Greece could be seen as the soft underbelly of Europe, along with Italy. There’s no doubt that they have taken the brunt of the problem over the past couple of years,” said Mr. O’Brennan.

The fact that migrants are making their way through Greece and up into the Balkans before trying to reenter the European Union via Hungary, is adding another element of volatility to the region.

If Greece does not have the will or resources to manage its borders, then that puts increased pressure on the Balkans countries, like Bulgaria and Serbia, that are already having to cope with a huge influx of refugees, mostly Syrians, trying to make their way into the European Union. It is already leading to political tensions in Bulgaria, Mr. O’Brennan told Handelsblatt Global Edition.

 

The European Union 2-01 (2)

 

Greece also plays a key role in relations with Turkey, a NATO ally. There have long been tensions between Greece and Turkey over the divided island of Cyprus. However, relations have improved greatly over the past decade, as Athens and Ankara pursued détente.

Last month Turkish prime minister, Ahmet Davutoğlu, even said the country would do everything it could to help Greece with its financial crisis. “We are ready to do whatever we can in terms of cooperation in tourism, energy and trade,” he said in a speech on June 30.

All these fragile relationships and Greece’s strategic regional role will be put at risk by a Grexit.

“Both Europe and the United States have been tremendous beneficiaries of Greece’s progressive Europeanization over the last decades,” said Mr. Lesser of the German Marshall Fund. “Not just in terms of prosperity but in terms of policy, including foreign and security policy.”

“In geopolitical terms, it’s essentially an unmitigated sum of negatives if the Greek crisis is not resolved.”

 

Siobhán Dowling covers European politics for Handelsblatt Global Edition. To contact the author: dowling@handelsblatt.com

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