So, the gloves are off. Anyone who thought negotiations between the new radical-left Greek government and its creditors were going to be conciliatory, or even rational, must think again. It’s only a few days since Syriza’s seismic election victory and the installation of Alexis Tspiras as Prime Minister. Yet discussions over Athens’ €350bn (£240bn) debt mountain – owed mainly to other eurozone governments, the International Monetary Fund and European Central Bank – have already turned ugly.
Greece and its official creditors are now issuing full-blooded threats and counter-threats, regardless of the impact on financial markets. The Athens Stock Exchange endured single-day double-digit percentage falls last week. On Tuesday, Greek banks, effectively controlled by official foreign creditors, lost over a quarter of their value.
Banking fears extend way beyond capital flight – as savers worry about Greece crashing out of the eurozone. There is concern the Syriza-led coalition could take direct control of Greek lenders and write-off billions of euros in household loans, destroying bank balance sheets in a frenzy of populist contractual vandalism.
Such recklessness would, of course, make a nonsense of Greek bail-out terms agreed in both 2010 and 2012, deals which amounted to a €325bn rescue to keep Greece afloat and the Eurozone in tact. Yet rewriting those deals, and softening related reform conditions, is the stated aim of both Syriza and the small, right-wing Independent Greeks party with which it is now in government.
Since last weekend, Syriza has blocked the sale of the government’s controlling stake in the Public Power Corporation, which generates two-thirds of Greek electricity, vowing to re-employ sacked workers and reverse pension cuts. The privatisation of Greece’s main port, another key plank of the sell-off programme which forms part of the bail-out conditions, has also been halted. Tspiras then appointed Yanis Varoufaki as economics minister, the man who will lead negotiations with international creditors. He says his country has been subjected to “fiscal waterboarding”.
Since Syriza won, Greek two-year bond yields have spiked towards an eye-watering 20pc. If sustained, such borrowing costs will drive the country into penury. The challenge now is to hammer out a debt-relief package that justifies Syriza’s chest-thumping, and satisfies an angry electorate, while not snapping the patience of voters across Eurozone creditor nations, not least Germany – which directly holds almost €60bn of Greek debt and implicitly stands behind much more.
The current bail-out package expires at the end of February. After that Greek banks won’t be able to borrow from the ECB – which would result in a bank run, a shut-out of depositors and, almost certainly, widespread civic unrest. A new deal simply must be done by month-end. So time is tight – and the rhetorical mud-slinging will get a lot worse before it gets better.
Into this heady financial and political mix, we must now add something else. Within a week of taking office, Syriza played the geopolitical card. A formally-worded complaint, issued by a spokesman for Tsipras, said the new Greek administration hadn’t approved a European Union Heads of Government statement on possible further sanctions against Russia.
“The aforementioned statement was released without the prescribed procedure to obtain consent by the member states and particularly without ensuring the consent of Greece,” the complaint read. “In this context, it is underlined that Greece does not consent to this statement”.
This amount to a diplomatic hand-grenade, lobbed directly at Brussels. EU sanctions against Russia will expire in March unless renewed by the unanimous decision of member states, giving Greece an effective veto. Amid a breakdown of the ceasefire in East Ukraine, and intensifying Western claims of Russian aggression, the US is exerting enormous pressure on “our European colleagues” to renew, and even tighten, sanctions against Russia. Has Syriza found the leverage it needs to secure serious debt-restructuring?
The question of Russian sanctions renewal will loom extremely large over the upcoming row over keeping Greece in the eurozone. Syriza has carefully laid the groundwork, voicing early support for the annexation of Crimea last March, then accusing the EU of “shooting itself in the foot” with sanctions and pointing to “neo-Nazis” within Ukraine’s Western-backed government.
Just before topping the Greek poll in European Parliamentary elections last May, Syriza’s high command met in Moscow with pro-Putin politicians subject to EU travel bans. In September, Syriza’s MEPs voted against the European Parliament’s ratification of the EU-Ukraine Association Agreement. Then last week, Tspiras announced that his new Defence Secretary is the leader of Greek Independents, Panos Kammenos – who last year stated that his party “publicly supports President Putin and the Russian government who have protected our Orthodox brothers in Crimea”. Oh, and Syriza’s manifesto also calls for Greece to leave Nato.
If these Greek debt negotiations go wrong, and positions become so entrenched and tempers unchecked that the madness of an outright default prevails, or even looks very likely, financial markets across the eurozone and the entire world could endure a Lehman-style systemic lurch. That would seriously damage the still-fragile global economic recovery. This Russia angle, the cosying-up by Syriza to Moscow, at a time when East-West relations are at a post-Cold War low, will add additional edge and potential nastiness to already complex and fraught negotiations that we all desperately need to go right.
Syriza’s intervention on Russia will no doubt be characterised by most other EU governments, and definitely the US, as immoral, irresponsble and outrageous. The reality is, though, that across the EU, support for sanctions against Russia is crumbling in capitals a long way from Athens.
Sebastian Kurz, foreign minister of Austria, recently said the EU should normalise relations with Russia. “It’s not about sharpening or easing sanctions,” he said. “It’s about coming away from pure reaction”. Federica Mogherini, the EU’s Italian Foreign Policy Chief, also suggested in a leaked memo that EU governments should start talking to Russia again about global diplomacy and trade.
Amidst a hail of criticism from more hawkish members such as the UK, Poland and the Baltic States, as well as the US, she was forced to back-track. France is also clearly keen to ease sanctions, so as to rebuild valuable commercial ties to Russia – and lessen the serious impact of Russia’s European food import bad on the powerful French farming lobby. Last week, Paris was slapped down by Brussels after seeking to forge a bilateral deal with Russia over trade in certain farm products.
And then there is Germany – where influential companies like Siemens and Volkswagen are very heavily invested in Russia. German exports to its massive Eastern neighbor, over €30bn in 2013, fell by a fifth last year – and the pace of that decline is accelerating. Last week, an influential group of government-funded German economists argued for a free trade zone between the EU and the Eurasian Economic Union – which was formed at the start of this year and currently includes Russia, Belarus and a clutch of Central Asian states.
Even Chancellor Angela Merkel, a fortnight ago in Davos, called for a free trade zone “from Lisbon to Vladivostock”, in return for Russian rapprochement with Ukraine. “We should offer Moscow a way out,” said Sigmar Gabriel, her Vice-Chancellor.
In March, EU foreign ministers meet to decide if sanctions against Russia will continue. Syriza may have been squared off by then, or maybe not. In the meantime, these debt negotiations will disappear into a fog of obscurantism – as the softened terms, while shouted from Greek rooftops, are buried under technical talk from Brussels. We must hope rationality, if not civility, prevails. But no-one can be sure.