Politics and Environment

Grexit’s unspoken geopolitical ramifications

11 June 2015

Greek Exit

Human Capital Alliance senior advisor K I Woo looks at the Greek EU exit’s geopolitical ramifications.

Although the world has focused on Greece’s European Union exit’s economic consequences,  unspoken geopolitical ramifications may provide clues to the ultimate resolution.

In a recent Fortune article, former US Ambassador to Greece, Daniel Speckhard said European finance ministers are missing the forest from the trees when it comes to the Greek debt crisis.

He argues that taking a hard-line against Greece by refusing to loosen bailout terms may end up costing Germany and the Eurozone a lot more in terms of hard cash and geopolitical power.

Economic perspective

From an economic perspective, Speckhard said Greece’s euro currency zone exit is not a great loss.

The current western aid cost to Ukraine could reach about $US40 billion per year while it would require far less to give the Greek people time to realize that the new government can’t deliver on its populist promises and remain a member of the Euro currency.

At the same taking a softer line on Greek is a worthwhile option if Europe thinks maintaining economic and political stability is important to fight-off Russian aggression in Eastern Europe and ISIS in the Middle East.

Technical default since 2010

Jon Kofas, a retired University of Indiana University Professor said in a recent article that Greece has been technically bankrupt since 2010.

“Unfortunately, European officials decided to pretend that this problem could be overcome by means of the largest loan in history on condition of fiscal austerity that would, with mathematical precision, shrink the national income from which both new and old loans must be paid. An insolvency problem was thus dealt with as if it were a case of illiquidity.”

In essence, Europe’s bankers refused to acknowledge the bad loans, preferring to grant new loans to the insolvent entities and pretending that original loans were performing while extending the bankruptcy into the future.

Slashing public budgets

In return for new loans in 2010, Greece promised to slash public budgets, sell off public assets and reform its labor laws.

“Greece’s bailouts have allowed it to keep its creditors at bay, but they have been a short-term disaster for the nation’s economy. “

Facing depression at home, the Greek electorate turned to a left-wing government in the parliamentary elections in January, which ran on promises to fight against the austerity conditions imposed upon it as conditions for its bailout.

Political reality – dual dependence

However political reality complicates the economic issue because although Greece is financially dependent on Germany, it is militarily dependent on the US.

This split-dependence contradiction, Kofas said causes friction because while Germany wants to enforce strict compliance with austerity, the US views Greece’s geopolitical value as more important.

“The objective of Washington has been to keep Greece militarily integrated into the West, to make sure it continues to keep up with military budgets as NATO prescribes, and not deviate at all by trying to explore the Russia and Chinese cards as symbolic counter-weights to the West.”

At the same time, US naval bases in Crete and US intelligence operations in the country are more valuable to Washington than Germany trying to prevail over Greece by driving it away from the West and endangering its internal political and social stability.

US wants Greece in EU

Because the US wants Greece in the EU for strategic reasons, it would like Germany to makes a few symbolic concessions to show that it is not a heartless neo-colonial power in Europe as its critics have portrayed it.

“However, Greek politicians and analysts are deluding themselves if they assume that the US would sacrifice its relationship with Germany to support Greece on austerity and neoliberal policies.”

A most likely scenario is SYRIZA caving into German-US pressure to conform to “disguised” austerity and neoliberal policies.

“A more distant possibility is everything from referendums to new elections that would not really solve anything, to Greece leaving the EU eventually.”

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