Originally Published 2015-02-23 00:00:00 Published on Feb 23, 2015
Did Russia's quick response of offering the new Greek prime minister with financial aid to sail through the financial crisis help him bargain the new time line for debt rescheduling? Yes or not, the victory of the 'Left' PM in the Greek general elections has given a geo-political twist to Eurozone's troubles.
Greek crisis: The geopolitical twist to Eurozone's troubles

After hectic negotiations, Greece's new government has bought four months more time to settle its rescue plan. This has helped the coalition government, which came to power on January 26, to avert a potential cash crunch in March that could have forced the country out of the Euro currency area. This is a small relief for Prime Minister Alexis Tsipras who came to power after the parliamentary elections last month. Tsipras is heading 'Syriza', a radical left political party, that emerged victorious in the elections of this debt-ridden country, facing severe austerity measures. Naturally, the left wing party, which came to power questioning the economic reforms of the previous Antonis Samaras regime, was expected to offer a tough bargain when the last bailout expired this month, as the young Prime Minister had even threatened to cancel the bailout deal. For two weeks, there were acrimonious public exchanges. So the agreement, clinched after the third ministerial meeting, offers a breathing space for the new Greek government to try to negotiate longer-term debt relief with its creditors.

The statement of Jeroen Dijsselbloem, chairman of the 19-nation Eurogroup, indicated a sign of relief in their side too. "Tonight was a first step in this process of rebuilding trust," Jeroen Dijsselbloem told a press conference. "We have established common ground again to reach agreement on this statement."

But the road ahead is not so rosy. The Prime Minister, which is heading a coalition with 'Independent Greeks' , which is an extreme right party, had been a severe critic of the austerity measures dictated by the troika of European Central Bank, European Commission and International Monetary Fund. Both the leftist and the right parties are opposed to the economic reforms implemented by the Antonis Samaras government.

Now the question is whether Tsipras will stop the economic reforms and the austerity measures or surrender to the pressure from the troika? Or will it lean towards Russia which is fighting a West imposed sanctions for its role in Ukraine?.

In fact, Tsipras's coalition of the right and the left in itself is quite puzzling. What unites the two is their opposition to the austerity programme. Columnist of the Greek Morning Daily 'Kathimereni', Nikos Konstandaras, hence terms the Syriza as a 'chimera', meaning an unpredictable hybrid of the left and right.

Greece has been blamed for the beginning of the Eurozone crisis which began in 2009 after Papandreou's government in Greece acknowledged that its debt figures had been misrepresented by his predecessor. The debt crisis soon escalated into a larger Euro crisis. A good five years have passed since then, but the Eurozone is still grappling with the crisis. Germany (read Angela Merkel) has been highly unpopular with the Greek population for the austerity drive that led to less public spending and increased taxes in return for the bailout packages. Germany is the biggest creditor from the Europen Union. Despite tax rises and lower public spending, Greece's current debt totals ?350bn debt or 175% and unemployment stands at 25%. So, when Tsipras promised the Greeks increased wages, pension, jobs and greater public spending along with no privatisation, the Greeks elected him unanimously.

The new Greek Prime Minister is a strong leader who knows how to openly voice his concerns and is definitely using the Ukraine crisis to his advantage. This is quite unlike his predecessor Samaras who was widely regarded as a puppet of Ms. Merkel. With the Russian angle to Greece's rebuff, EU's economic troubles have now gained a geopolitical fervour. Quite evidently, the impact of countersanctions by Russia has adversely affected the European economy. Greece, which is already laden with debt, is considering the revenue losses due to bans on exports therefore needs no reason to go along with the EU members on sanctions.

The Eurozone suffers from various structural defects. Because the Eurozone is a monetary union but not a political union, it does not have a fiscal policy at the level of the union that can complement monetary policy. The absence of a central budget implies that no budgetary policy exists for stabilizing the business cycle in the union in situations of crisis. The pressure is on the ECB who neither has the capability nor the willingness to deal with crisis situations. Moreover, lesser competitiveness of peripheral counties hampers the development of the Euro zone. The friction among the EU members on decision making has also been much talked about and was evident once again when the peripheral Greece openly denounced the decision making by EU over extending the sanctions on Russia. The move highlights the gap between Greece's new government -and the European Union. Since Tsipras has sought exemption of a third of Greece's debt from the troika, the West actually views it as a blackmail ploy by Tsipras to have his way with the debt exemption.

Russia, on its part, was quick to respond. On January 29, just three days after Tsipras won the election, Russian Finance Minister Anton Siluanov announced on CNBC that Russia would consider extending financial aid to Greece if the latter sought its help. The support of Russia for Greece and vice versa has definitely not gone down well with the European Union. Eyebrows had been rising ever since Russian ambassador to Greece, Andrei Maslov was the first to visit the PM's office when Tsipras came to power. But when the Greek PM openly supported Russia, panic bells started ringing in the EU. However, the debt negotiations between the EU and Syriza government have intensified and it remains to be seen if they are able to sort out their differences.

Greece has also shown its opposition for the Transatlantic Trade Investment Partnership (TTIP) between the EU and the United States of America that proposes free trade. Deputy Minister for administrative reform in the Syriza government, Georgios Katrougkalos has made clear that Athens will use its veto power to nullify the deal. This he said would be "a big gift not only to the Greek people but to all the European people".

One must remember that it is not only Greece that is trapped in this vicious circle but the Eurozone as a whole. In 2012, there had been great speculations of a Greece's exit (Grexit) from Eurozone, but it never happened. Once again, the speculations of a Grexit have gained prominence but the question remains what happens to the remaining PIGS (Portugal, Italy and Spain) economies if Greece exits? Unlike Greece, the remaining PIGS are bigger economies and their exit from the Eurozone does not sound realistic. So, the entire EU project remains shaky already. As for Greece, its exit in 2015 might be much less painful than it was in 2012 but it surely is going to pinch the European Union (read Germany). Add to this the impact of countersanctions on Europe, and the picture turns bleaker still.

Russia's closeness to Greece at this juncture would only aggravate matters further. The EU has not been able deal with Russia's problem strategically. It must realise that Russia is an important European player, whether it likes the latter or not. It must learn its lessons and keep Greece on its side. This requires a reform in the structure of the Eurozone itself to balance out the gap between the core and the periphery. It is high time that the EU started thinking more realistically on the entire issues of sanctions as well as bailout packages. The austerity obviously isn't working and neither are the sanctions on Russia productive. Hence, it is unfair to increase the burden on Greece and other European economies which remain at a no gain-complete loss situation due to increased debt, decreased revenue vicious circle. The European Union and Eurozone are novel projects but they need to adopt a pragmatic approach in order to survive hard times.

(The writer is a Research Assistant at Observer Research Foundation, Delhi)

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.


Nachiket Udupa

Nachiket Udupa

Nachiket Udupa Member Mazdoor Kisan Shakti Sangathan India

Read More +