Greek Prime Minister Alexis Tsipras and Gazprom CEO Alexei Miller agreed last week on a “roadmap” for a multi-billion dollar pipeline project to transport gas from Russia to Greece. The long-term plan is a further sign of warming geopolitical ties between Athens and Moscow, at a moment when the Greek economic crisis appears to be worsening.
In effect, Greece is now engaged in a very high stakes game of poker. It has issued a legislative decree to tap pockets of cash reserves across the public sector and has reportedly made plans to potentially nationalize the banking sector and introduce a parallel currency to pay bills in the event its cash reserves are exhausted.
Tsipras insists he wants Greece to keep the euro, but doesn’t appear to have a clear strategy for negotiating with international creditors. What he has warned repeatedly of are “major clashes” that are needed with these creditors to ease the country’s debt burden which is over a staggering 175 percent of its GDP.
Earlier this month, he also agreed to meet Russian President Vladimir Putin. The session, billed as routine, had originally been planned for May but was brought forward, serving as a prelude to the meeting between Tsipras and Gazprom over the pipeline roadmap.
While most Greek officials have dismissed the idea of receiving wider Russian aid, Defence Minister Panos Kammenos has floated the idea in public. And Russian Foreign Minister Sergei Lavrov has indicated that Moscow would consider such a request were it made.
The meeting with Putin was most likely an attempt by Tsipras to raise pressure on Greece’s creditors. It and the announcement of the pipeline roadmap will raise fears in some circles of a potential pivot toward Moscow in the event that relationships between Athens and its creditors break down completely.
While the intensifying crisis in Greece could yet be resolved before the May deadline for repayments to the IMF, this is far from sure. And no developed country has ever fallen into arrears to the IMF or any other Bretton Woods institution. Greece appears perilously close to risky and uncharted territory.
Which, in turn, raises the issue of potential Greek exit from the euro (the so-called Grexit). The prospects for such a rupturing of the euro zone have grown since Greece’s January election, when a radical-left party won power for the first time in the EU in years.
The party, Syriza, comprises a broad spectrum of socialists and communists, anti-fascists, environmentalists, anti-globalization campaigners and human rights advocates. And it is, notably, staunchly anti-austerity.
As Syriza fell just short of an absolute majority in the Greek Parliament in January’s elections, it formed a coalition with the conservative Independent Greeks party, which shares a strong anti-bailout position. This has reinforced Syriza’s instincts that the country’s economic “humiliation” must come to an end.
But while the possibility of a Grexit cannot be dismissed, it’s hard to predict what its impact would be.
Today, more than 80 percent of Greece’s public debt is owned by institutional investors, whereas private investors held the vast bulk of Greek bonds in 2011. This may reduce the likelihood of further turmoil in Athens spreading significant contagion through the euro zone.
But even under the mildest of financial stress scenarios, it is estimated there would potentially be a contraction in euro zone GDP of at least 1.5 percent. This is greater than the current contribution of the Greek economy.
Perhaps most striking, Grexit would show that euro zone membership is reversible, changing investor perceptions of risk.
Whether or not Grexit happens, increased saber-rattling from Athens could heighten investor fears about the strength of populist and euroskeptic parties across the EU. In this respect, the Greek election result may represent only the first rumblings in 2015 of potential political and economic earthquakes on the European horizon.