So, the gloves are off. Anyone who thought negotiations between the new radical-Left Greek government and its creditors were going to be conciliatory, or even rational, must think again.
It is only a few days since Syriza’s seismic election victory and the installation of Alexis Tspiras as prime minister. Yet discussions over Athens’ €350bn (£240bn) debt mountain – owed mainly to other eurozone governments, the International Monetary Fund and European Central Bank (ECB) – have already turned ugly.
Greece and its official creditors are now issuing full-blooded threats and counter-threats, regardless of the impact on financial markets. The Athens stock exchange endured single-day, double-digit percentage falls last week. On Tuesday, Greek banks, effectively controlled by official foreign creditors, lost over a quarter of their value.
Banking fears extend way beyond capital flight – as savers worry about Greece crashing out of the eurozone. There is concern the Syriza-led coalition could take direct control of Greek lenders and write off billions of euros in household loans, destroying bank balance sheets in a frenzy of populist contractual vandalism.
Since last weekend, Syriza has blocked the sale of the government’s controlling stake in the Public Power Corporation, which generates two thirds of Greek electricity, vowing to re-employ sacked workers and reverse pension cuts. The privatisation of Greece’s main port, another key plank of the sell-off programme which forms part of the bail-out conditions, has also been halted. Tspiras then appointed Yanis Varoufakis as economics minister, the man who will lead negotiations with international creditors. He says his country has been subjected to “fiscal waterboarding”.
Into this heady financial and political mix, we must now add something else. Within a week of taking office, Syriza played the geopolitical card. A formally worded complaint, issued by a spokesman for Tsipras, said the new Greek administration had not approved a European Union heads of government statement on possible further sanctions against Russia.
“The aforementioned statement was released without the prescribed procedure to obtain consent by the member states and particularly without ensuring the consent of Greece,” the complaint read. “In this context, it is underlined that Greece does not consent to this statement.”
This amounts to a diplomatic hand grenade, lobbed directly at Brussels. EU sanctions against Russia will expire in March unless renewed by the unanimous decision of member states, giving Greece an effective veto.
The question of Russian sanctions renewal will loom extremely large over the upcoming row over keeping Greece in the eurozone. Syriza has carefully laid the groundwork, voicing early support for the annexation of Crimea last March, then accusing the EU of “shooting itself in the foot” with sanctions and pointing to “neo-Nazis” within Ukraine’s Western-backed government.
Just before topping the Greek poll in European parliamentary elections last May, Syriza’s high command met in Moscow with pro-Putin politicians subject to EU travel bans. In September, Syriza’s MEPs voted against the European Parliament’s ratification of the EU-Ukraine Association Agreement. Then last week, Tspiras announced that his new defence secretary is the leader of Greek Independents, Panos Kammenos – who last year stated that his party “publicly supports President Putin and the Russian government who have protected our Orthodox brothers in Crimea”. Oh, and Syriza’s manifesto also calls for Greece to leave Nato.
If these Greek debt negotiations go wrong, and an outright default prevails, or even looks very likely, financial markets across the eurozone and the entire world could endure a Lehman-style systemic lurch.
Greece has emboldened other potential defectors within the EU. The reality is, that across the EU, support for sanctions against Russia is crumbling in capitals a long way from Athens.
Sebastian Kurz, foreign minister of Austria, recently said the EU should normalise relations with Russia. “It’s not about sharpening or easing sanctions,” he said. “It’s about coming away from pure reaction.” Federica Mogherini, the EU’s Italian foreign policy chief, also suggested in a leaked memo that EU governments should start talking to Russia again about global diplomacy and trade.
France is also clearly keen to ease sanctions, so as to rebuild valuable commercial ties to Russia – and lessen the serious impact of Russia’s European food import ban on the powerful French farming lobby.
Last week, Paris was slapped down by Brussels after seeking to forge a bilateral deal with Russia over trade in certain farm products.
And then there is Germany – where influential companies like Siemens and Volkswagen are very heavily invested in Russia. German exports to its massive eastern neighbour, over €30bn in 2013, fell by a fifth last year – and the pace of that decline is accelerating. Last week, an influential group of government-funded German economists argued for a free trade zone between the EU and the Eurasian Economic Union – which was formed at the start of this year and currently includes Russia, Belarus and a clutch of Central Asian states.
Even Chancellor Angela Merkel, a fortnight ago in Davos, called for a free trade zone “from Lisbon to Vladivostok”.
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"On Nato, Syriza describes its approach as a 'multi-dimensional, pro-peace foreign policy for Greece, with no involvement in wars or military plans.' It seeks 'the re-foundation of Europe away from artificial divisions and Cold War alliances such as Nato.'
"The new Greek government is cause for concern, especially because Tsipras has voiced his opposition to NATO membership in the past," Ian Bremmer told Business Insider last week. "And his early actions — these comments regarding sanctions, as well as his meeting with the Russian ambassador to Greece without hours of taking office — demonstrates that he is willing to engage differently with Moscow."
"Greece and Cyprus can become a bridge of peace and cooperation between the EU and Russia," the new prime minister Tsipras reportedly said on Wednesday.
For Russia, this is just the latest news of a budding military alliance. Over the year, Russia has been increasing its military cooperation with non-NATO members, including China , India , North Korea , and Iran .
Even a distant threat that Greece might leave NATO and sell a naval base to Russia would be a serious matter not just for Europe but also for the United States.
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