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European Union

The EU's Strategic Blunder: Pushing Greece into Moscow's Arms

Strategic Insights

— 2 min read

The European Union has made a grave error in its handling of the Greek crisis, forcing the left-wing government of Alexis Tsipras into the welcoming arms of Vladimir Putin's Russia. By insisting on rigid compliance with creditor demands, the EU has effectively destroyed any chance of a negotiated solution, emboldening the Kremlin to make its move. As a result, Greece is now poised to veto EU sanctions against Russia, and Hungary's Viktor Orban is likely to join in, followed by Slovakia.

Key Takeaways:

  • The EU's uncompromising stance has led to a breakdown in relations with the Greek government, which has been forced to seek alliances with Russia and China to circumvent the EU's creditor demands.
  • Russia's economic situation is precarious, with a projected 3% economic contraction this year, and most of its $360bn foreign reserves are needed to plug holes and help Russian companies roll over hard-currency debt.
  • Greece has enough money to pay the IMF €458m on Thursday but will be short of funds to meet €1.7bn in pensions and salaries five days later.
  • Syriza is wisely deciding to avoid defaulting on the IMF, or even falling into arrears, as no developed country has ever taken this step.
  • A default on the ECB, however, is a possibility, as Greece would rather pick its fight with EU creditors and the ECB, which it sees as "enemy number one."
  • The Greek parliament was never consulted on the ECB's decision to buy Greek bonds in 2010 to bail out German and French banks.
  • The fear is that Greece will kick off with a selective default to Frankfurt, judging this the easiest political target, which would cover both bonds and €80bn of "Target2" liabilities to the rest of the ECB network.

Statistics:

  • €1.8bn: Amount Greece must roll over in April and May to meet early maturities on its international bonds.
  • €100m: Amount China has already bought of Greek T-bills as a show of moral support.
  • €1.4bn and €1bn: Amount Greece must roll over on April 14 and 17, respectively.
  • €6.7bn: Amount Greece must pay the ECB in July and August to cover bond redemptions unless there is a fresh bailout programme.
  • 3%: Projected economic contraction of the Russian economy this year.
  • €80bn: Amount of "Target2" liabilities Greece has built up automatically due to capital flight.
  • €194m: Amount Greece must pay in interest to the ECB on April 17.
  • $360bn: Russia's foreign reserves, most of which are needed to plug holes and help Russian companies roll over hard-currency debt.

Sources:

  • Ambrose Evans-Pritchard, "The EU's Strategic Blunder: Pushing Greece into Moscow's Arms"
  • The Telegraph, "Greece Agrees to Meet IMF Payment: IMF in Turn Agrees to Show 'Utmost Flexibility' over Syriza's Reform Plans"
  • IFO Institute, "Hans-Werner Sinn: Germany and other Creditor States on the Hook for Huge Amounts through Target2"
  • Greek Ministry of Finance, "Statement on Greece's Economic Situation"
  • Russian Ministry of Finance, "Speech by Vladimir Putin on Economic Cooperation with Greece"

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