LONDON – Perhaps the weirdest story I heard during my visit to Athens was that the new government might even try to get bridge financing from Russia if Europe does not accept the demands of Syriza, the radical leftist party (the Coalition of the Radical Left), which swept snap elections in Greece. In a way, Syriza is indeed schmoozing up to Russia:
• Syriza chose the pro-Russian right-wing populists of ANEL, the Greek version of UKIP and AfD, as their coalition partner over pro-European Potami.
• Just hours after taking office, Prime Minister Alexis Tsipras went to see the Russian ambassador on Jan. 26.
• The new foreign minister, Syriza left-winger Nikos Kotzias, comes with a pro-Russian reputation.
• Greece is now threatening to veto new EU sanctions against Russia.
A Russian angle could theoretically complicate matters. That would propel the Greek issue very much into the realm of geopolitics, in which concerns far beyond those of debt dynamics, economic growth and structural reforms are paramount.
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. So perhaps Greece playing around a little with a Russian card could get Europe and the U.S. States to focus on geopolitics rather than fiscal bean counting?
And with many in the U.S. — like the International Monetary Fund — apparently believing that Greece needs a cut in its nominal debt burden anyway (solely at the expense of Europe, of course), might that strengthen the hand of Greece in its demands for a big debt-write off?
It ain’t that easy. Before Syriza plays a supposed Russian card, it will need to consider three questions:
1. Would Russia pay up?
When Cyprus desperately tried to get money to avoid asking for a European bailout, its then-finance minister came home from a begging trip to Moscow for a couple of billion euros on March 19, 2013 — completely empty-handed. And that was when Russia was still awash in oil money.
2. Could Russia pay up?
The problem in Greece is not one of plugging a short-term fiscal gap of a few billion euros.
Even a Russia in deep recession could perhaps cough up that amount now that Putin might want to go for any geopolitical advantage, after having wrecked his relations with Europe and the U.S. by invading parts of Ukraine.
But the Achilles heel of Greece is the need to backstop the banking system. According to Kathimerini, the emergency liquidity assistance for Greek banks as authorized by the ECB had reached a peak of €135 billion at the time of the Greek repeat election in June 2012 before falling back to zero by May 2014.
That is a big number. The conclusion is obvious: The ECB is the only possible backstop for Greek banks in the euro. If Greece decided to renege on its obligations to Europe and the IMF and turn to Russia instead for a small bridging loan, ECB support for Greek banks would have to stop. Put differently, a Russian loan would not help Greece at all.
3. What would Greeks say?
While some at Syriza may indeed suffer from Soviet nostalgia, perhaps believing that Putin’s version of the old Comecon would be preferable to the European Union, this is not what Greek voters were led to expect.
For the sake of argument, just suppose that Greek bank customers would one day wake up to learn that their deposits are now backed by the Russian rather than the European Central Bank.
Would they take that quietly? Or might that spark the very run on banks that the knowledge that there is a backstop is supposed to prevent?
The double-populist coalition of Syriza and ANEL, beyond their innate inclination for a pro-Russian line, may occasionally toy with the idea of playing a Russia card.
But they would be toying with a key national interest. Greece sits in an exposed corner of Europe, close to war-torn regions such as Syria and Libya and next to a big neighbor, Turkey, of which it is still a little afraid.
To exchange wealthy and powerful allies, Europe and the U.S., for a Russia crumbling under economic incompetence would not be a wise choice. Chances are that the Greeks wouldn’t let Syriza-ANEL get away with that.
Greece needs fresh money and a reliable backstop. It can get that only from Europe and the IMF. Flirting with Russia won’t help Greece secure better terms from the only realistic lenders it has.
And as to a Greek veto against potential new sanctions against Russia, yes, that would also irk Europe a bit. But Europe has all the lawyers it needs to find a way around that if it really has to.
When U.K. Prime Minister Cameron vetoed the eurozone’s new fiscal pact in December 2011, it was adopted nonetheless by a coalition of the willing (25 out of 27). Europe can be quite flexible when it has to get around attempts to obstruct its greater plans.
4. Could China be an alternative to Russia for Greece?
Unlike Russia, with its gradually dwindling reserves that are badly needed to back up to foreign-currency debt of its flagging companies, the Chinese have foreign exchange reserves galore, a full $3.8 trillion.
Well, perish the thought. The perennial rumor that China might save Greece by buying its bonds first made the rounds just before Greece crashed in early 2010. China wants hard assets, not soft bonds. It has invested in Greece’s Piraeus harbor.
Learning that the new Greek government, as one its very first acts, just canceled the pending privatization of a further part of the harbor, which China’s Costco had been slated to buy, does not exactly make it likely that Greece can strike a deal with the hard-nosed state capitalists of China.
Holger Schmieding is chief economist at Berenberg Bank in London.
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