Greece is quickly turning into a nightmare for Europe.
Syriza, the radical left-wing political party which won the Greek parliamentary elections over the weekend, surprised the EU by challenging economic reforms as well as the sanctions imposed on Russia.
Berlin and its European partners insist on reforms as a condition for receiving more aid that Athens desperately needs by next month to service its debt.
The new Greek finance minister, radical academic Yanis Varoufakis, once likened German austerity policies to “fiscal waterboarding.” And this week Greece halted two big privatizations without consulting EU officials and pledged to raise pensions and rehire fired public sector workers.
On Thursday, the EU managed to extend the existing sanctions against Russia by six months, but Reuters reports that they dropped language about drawing up “further restrictive measures” that had been in a pre-meeting draft.
“It is no secret that the new stance of the Greek government has not made today’s debate any easier,” Germany’s Foreign Minister Frank-Walter Steinmeier said.
Since the sanctions can’t be imposed without all 28 EU countries agreeing, and Greece is ultimately after a debt write-off, some noted that Greece might have taken this stand order to have a
bargaining chip against the EU. In other words, Greece could offer to trade the vote needed to pass an additional round of sanctions against Russia in exchange for debt relief.
Ian Bremmer, who earlier flagged the politics of Europe as one of the biggest risks going into 2015, told Business Insider that “even if they don’t block sanctions, there are broader implications of their voiced discontent.”
In any case, Greece’s stands against the reforms and the sanctions reveals three major issues:
1) The biggest and immediate problem: Greece’s veiled stand against new sanctions on Russia reveals how splintered the EU is becoming.
“The issue is that politics and economics in Europe are going to get worse,” Bremmer told the Council of Foreign Relations. “The issue is that the perception of crisis is taking roots once again. The issue is that other parties of similar alignment are going to make gains, and the political cohesion of Europe is going to deteriorate even further.”
That deterioration would also drive a wedge between the US and the EU.
“Many Europeans would love to have Greece take the flak for stepping out of line — and then get right behind them,” Bremmer told BI. “Greek disapproval (even if it falls short of a veto) is one more pressure that could slowly pull apart European member states’ alignment on sanctions — and distance Europe further from the United States.”
2) A breakdown in Germany-Greece talks and the consequent possibility of a Grexit would distract the EU from its bigger problems.
“Greece’s debt is absolutely not sustainable. And the haircut that [Greek Prime Minister Alexis Tsipras] suggests is absolutely a non-starter,” Bremmer said. “As a result, the two parties are on a collision course. Ultimately, to reach a deal, Tsipras is going to have to bend much more from his present positions than the Europeans. The issue is whether he is willing and able to do so.
“If his party refuses — or more likely, if they miscalculate — they could severely threaten the prospects for a deal. That would make Grexit a credible possibility, and usher in all sorts of economic turmoil. The result could be a Europe that is heavily distracted from — and less united in — dealing with Russian aggression, instead focusing on bigger worries at home.”
3) A potential Greece-Russia cooperation could become a big problem for the EU in the long-run.
On Thursday, Russia announced that it would consider extending financial aid to Greece if the latter asked. Bremmer notes that Greece gets a lot of money from Russia through trade and tourism, and there’s a long-term gas pipeline deal in the mix as well. Russia would also love warm water port, since Ukraine and Syria haven’t been working out.
“The new Greek government is cause for concern, especially because Tsipras has voiced his opposition to NATO membership in the past,” Bremmer told BI. “And his early actions — these comments regarding sanctions, as well as his meeting with the Russian ambassador to Greece within hours of taking office — demonstrate that he is willing to engage differently with Moscow.”
Bremmer added that Athens will prioritise economics over geopolitics in the near term, but “if Greek negotiations with Europe go off the rails, [which is] very plausible, we would enter a very different dynamic.
“For its part, Russia would love to leverage Tsipras to sow European disunity on sanctions … and that’s just a starting point. Russia could use a warm water port in the Mediterranean. If things go badly for Greece, that’s an interesting geopolitical option, and we could start to see it leveraging its relationship with Russia much more forcefully.”
The bottom line is: as Bremmer noted earlier in January, the friction among the EU states is worsening, and stronger cooperation amongst German, France, and the UK would be the best case for Europe.
“That [coalition] actually allows for a broader mandate and a level of institution building with a periphery that is not so incredibly polarised, which is the situation that you have right now,” Bremmer said.
“Unfortunately, that means it’s going to get worse before it gets better, so there is no solution for this in the near term,” he added. “In the medium term, there is, but we have to get lucky.”