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Photograph taken by Validus account executive Andriana Goudis at a Greek restaurant in Bristol (UK)


“Over two decades we destroyed our production capacity and industry.  In the first decade of this century, after entry into the EMU, we could also excessively borrow at low rates, and we did.  As a result, we became a country of importers – while we received the money from the EU with one hand we did not invest with the other hand in new and competitive technologies.  Everything went into consumption.  The result was that those who produced something closed their factories and opened import companies because they could make more money with this.”


Michalis Chrysochoidis

Former Greek Minister of Economics

February 2012



It was not a particularly good week-end for the Greeks.  The national football team was beaten 2-1 by the Faroe Islands (population 49,500), consigning the 2004 European champions to the bottom of their qualifying group for the 2016 European Championships.   The Greek government’s team of negotiators, locked in tense discussions with European officials in Brussels on Sunday, did not appear to perform much better than their more athletic compatriots.  At issue was what concessions the Greeks would need to provide in order to secure a €7.2 billion tranche of financial aid, enough cash to ensure the Greeks would be able to meet a €1.6 billion debt repayment due on June 30th (That works out to about €150 for each Greek man, woman and child).


The whispers coming out of the Belgian capital as of this writing (on Sunday evening) were not encouraging, with the Financial Times quoting an anonymous EU diplomat as saying: “Positions are still far apart.  It’s not certain there will be an outcome”, with another Eurozone official dampening the mood even further by commenting that “Greek movement (is) not discernible.  I think they do not want a solution.”


The Greeks are playing hardball here.  They are unwilling to accept the conditions being demanded by the Troika, including further cuts to public sector pensions and higher energy taxes, to meet aggressive financial budget targets.  Alexsis Tsipras, the youthful Greek prime minister, has stated categorically that his plans (which call for more lenient targets) represent the only “realistic proposals on the table.”


On the surface, this seems incredibly foolish.  Unlike last time we faced a Greek crisis (2012), the financial markets, and most importantly the European bond market, seem pretty well placed to manage the fallout from any default and “Grexit”.  Now that European quantitative easing is a fait d’accompli, the dreaded risk of contagion, where a Greek default leads to sell-offs of the bonds of other (mainly southern) European countries, is limited.  The ECB can now just step in and buy as many Portuguese or Italian bonds as it needs to, should investors get spooked.  This is the reason why the euro has been relatively stable in recent weeks, despite the increasing fears over a Greek default, unlike the situation three years ago. 


As such, it seems like Tsipras and the Greek government are playing a of game chicken whilst sitting atop a peddle bike, glaring down the highway as their creditors in the ECB, the EU and the IMF speed towards them in a V8 Hummer H3.  Without the threat that Greece, in the words of their shaven-headed finance minister Yanis Varoufakis, can “bring down the financial world”, then surely it is inevitable that the troika will not give an inch, leading to an inevitable Greek default by the end of the month, and a subsequent Greek exit from the euro zone?


We are not so sure.  While it is true that the ECB’s QE programme provides a firewall against the risks of financial contagion, there is another equally (if not more) important reason why the European Union (and the United States for that matter) will be very reluctant to let Greece default and exit the euro zone.  As American economist Marc Wiesbrot wrote recently:


“The politics of empire are much more important than any economic concerns here. For the same reasons that the United States intervened in Greece’s civil war (1946 to ’49) and supported the brutal military dictatorship (1967 to ’74) — with all the murder, torture and repression that these involved — Washington does not want to have an independent government in Greece.”[1]


Geopolitics tends to trump the more routine demands of economic and financial crises.  The risk of turning Greece into a failed state sitting right on the doorstep of Europe, and bordering on the geopolitical hotspots of the Middle East and North Africa, and which is just an oil pipeline across the Black Sea away from Russia,) is not a risk that either the European Union or the United States would be particularly comfortable with.


Figure: Proposed Turkish Stream Gas Pipeline

Picture 2

 Source: Penza News


No, the Greek hand is not as weak as it might appear to be.  Tsipras is desperate to secure meaningful debt relief for Greece, and he is clearly willing to bet on the fact that Europe and the United States will be willing to pay billions to ensure that Greece remains firmly ensconced within the EU, the euro zone and NATO.  As Eirini Karamouzi, lecturer in contemporary history at Sheffield University stated in an interview with Bloomberg:


Greece’s geopolitical potential has been used as a promise, but mostly as a threat.  There’s always been the threat of a catastrophic spill over effect if Greece was left to its own devices or, worse, turn into a failed state in Europe’s backyard”[2]


The only question is, how much is it worth to Europe and her allies to avoid this outcome?  We would bet at least €7.2 billion.



[1] https://rwer.wordpress.com/2015/06/12/germany-is-bluffing-on-greece/
[2] http://www.bloomberg.com/news/articles/2015-06-11/keeping-greece-in-the-euro-may-have-nothing-to-do-with-finances


Author: Kevin Lester