Analysis: Greece using Russian links, strategic location to force EU austerity cave

The interconnected nature of our world is highlighted by the Greek impasse with its fellow European Union members.  Greece is a small country, with an economy that accounts for under half a percentage point of global GDP – around two thirds of South Africa's. Its recent bailout ballooned national borrowings to over 150% of its annual GDP, pushing the country past what economists used to call a debt trap. As any sensible householder will tell you, there are only two ways out of that kind of problem – cut your spending (ie austerity) or raise your income (increase taxes). Faced with a similar challenge, Portugal and Ireland worked through the pain and are now pretty much rehabilitated. But the Greeks found that less appealing so voted in a far left Government with the mandate to tell creditors to take a hike. Led by a youthful new Prime Minister, the new political leaders have done exactly as instructed by the Vox Populi. Raising the curtain rises on a modern Greek Tragedy. – AH    

By Paul Taylor

BRUSSELS, Feb 16 (Reuters) – In the tug-of-war over Greece's debt crisis, geopolitics and domestic politics are pulling in opposite directions.

Greece's strategic location and ties to Russia give its new leftist-led government some leverage in its struggle to make European Union creditors ease up on austerity and give Athens more time to repay its mountain of debt, if it ever does.

The outcome of this latest round of Europe's Greek drama may also determine whether the euro currency is irreversible, as its founders proclaimed, or if it will unravel.

If the weakest link were to fall, EU officials and analysts say markets would immediately focus on which country might be next to follow Greece out of the 19-nation single currency area, piling damaging pressure on Cyprus and perhaps Portugal.

For decades, Greece's Western partners turned a blind eye to flawed governance and fiscal incontinence in Athens, pouring in money to help keep the country out of Moscow's clutches.

In 1947, President Harry Truman proclaimed the doctrine that the United States would aid "free peoples" against "totalitarian regimes" in the midst of a Greek civil war in which Washington funded the defeat of Soviet-backed communist insurgents.

Greece joined the U.S.-led NATO military alliance in 1952 and was part of an arc of authoritarian states with Turkeyand Iran that guarded the southern flank of the Soviet bloc.

Many Greeks still angrily resent U.S. support for the military junta that ruled their country from 1967 to 1974.

After a democratic Greece joined the EU in 1981, it received net transfers equivalent of 4 percent of GDP per year from the community budget for its economic development over the two decades until it joined the euro in 2001.

Holding the euro area together was the main motive for two EU/IMF bailouts worth 240 billion euros granted in 2010 and 2012 in return for harsh spending cuts, tax increases, privatisations and structural reforms that were only partially implemented.

The geopolitical arguments for helping Greece may be as strong as ever, with Western powers locked in confrontation with Russia over its role in Ukraine, and Eurosceptical populists of the far left and extreme right on the rise in many EU countries.

But domestic politics in Greece – where public opinion is exasperated by austerity and foreign supervision – and in euro zone partner countries, determined not to give the Greeks a free ride, makes that support ever harder to sustain.

Neither German Chancellor Angela Merkel nor other European leaders want to have to tell their parliaments that the money they lent Greece will not be coming back. That would appear to preclude a straightforward debt write-off of the kind that the new Greek authorities initially sought.

Besides, after a small repayment hump to the IMF this year, Greece is not due to start reimbursing most of its official debt until after 2030, and it has a 10-year interest payment holiday on euro zone loans.

Creditors such as Germany, Finland and Slovakia could face parliamentary resistance to granting Prime Minister Alexis Tsipras's radical government additional funds on easier terms with fewer conditions and less intrusive oversight.

Tsipras has promised to roll back spending cuts that have cast hundreds of thousands of Greeks into poverty and shrunk the economy by 25 percent, and to raise the minimum wage, rehire sacked public service workers and restore collective bargaining.

Governments in Spain, Portugal and Ireland that have pushed through painful austerity plans in return for aid, and face elections in the next year, are determined not to see him win a discount that would embolden their own political opponents.

If Greece failed to reach a new deal with its European creditors and ended up defaulting and leaving the euro zone, some in Athens would like to turn to Moscow for financial help.

Defence Minister Panos Kammenos, a right-wing ultra-nationalist in coalition with Tsipras's hard left Syriza party, has openly sought to play the Russian card to press Berlin to make concessions.

"If we see that Germany remains rigid and wants to blow apart Europe, then we have the obligation to go to Plan B. Plan B is to get funding from another source," he said last week. "It could be the United States at best, it could beRussia, it could be China or other countries."

Foreign Minister Nikos Kotzias visited Moscow on the eve of last week's meeting of euro zone finance ministers, and Tsipras has accepted an invitation to go there in May.

Some EU diplomats, irritated that EU documents concerning Russia seem to find their way to the Kremlin before European ministers have even discussed them, have long suspected Greek and Cypriot officials of acting asMoscow's "Trojan Donkeys".

Some EU ministers clearly have the geopolitical stakes in mind in the debt negotiations.

Italian Economy Minister Pier Carlo Padoan said after Athens agreed last week to "technical" talks with its creditors that "the risk of a Greece outside Europe and in the orbit of Russia is moving further away."

It is also far from clear that Greece has a realistic Russian alternative to euro zone funding.

President Vladimir Putin has not rushed out his chequebook either now or earlier in the debt crisis when a previous Greek government took exploratory soundings in Moscow.

Russia may be interested in Greek energy and infrastructure assets, but with its own economy hard hit by sanctions and falling oil prices, it shows no inclination to bankroll Athens.