The potential for a Greek exit from the eurozone has probably never looked this real. The government is running out of cash and doesn’t seem to have enough for its next International Monetary Fund payment.
Missing a debt payment could push the European Central Bank to withdraw support from Greece’s banking system and eventually cause a “Grexit” — a disorderly Greek exit from the eurozone.
This would have major implications not just for the well-covered economic issues but for European security too: Greece has historically had close ties with Russia. Both are Orthodox nations on the fringes of Europe (with a common enemy in the Ottoman Empire for a long time), and Moscow could see an opportunity to expand its influence in a destabilised Greece.
And it looks like German Chancellor Angela Merkel is getting concerned about those security risks.
On May 19, Bloomberg suggested that Merkel was preparing a defence of continued German support based on geopolitical lines.
Now that’s becoming a point of interest in the German press too. Reports in Die Welt suggest that Merkel and finance minister Wolfgang Schaeuble are split on the issue of Grexit — he seems to be unworried about the possibility.
Die Welt notes that Merkel has the strong support from the country’s foreign office, who fear Greece “sinking it into turmoil and chaos, to perhaps even turn to the Russians, all because of a few billion euros.”
According to Deutsche Wirtschafts Nachrichten, another German media outlet, she’s raising the issue that Greece is a NATO country with her sceptical centre-right party, further indicating that the Chancellor views the primary threat to Europe from a Greek exit as one of security, not of economics as it was in 2010 or 2012.
As Charles Grant and Christian Odendahl at the Centre for European Reform say, Schaeuble is not responsible for the political security of Europe in the same way that Merkel is: “Inevitably, Merkel thinks more about the geopolitical context than Schaeuble. She is under discreet pressure from the Obama administration, which worries about the risk of a Greek-Russian rapprochement.”
A recent note from Eurasia Group made similar suggestions about why a Grexit scenario might pose non-economic risks.
Russia’s destabilization of Ukraine has likely made Europe’s choices even more difficult, by removing the illusion that President Vladimir Putin’s Russia was on a path to converge with the West. Instead, the prospect of instability in the Balkans, the Black Sea area, and the Eastern Mediterranean has become even more pressing. This, rather than financial contagion, seems to be the real problem for Europe and is certainly what currently preoccupies Germany most.
It’s easy to see how this is a much more compelling argument for bailout sceptics, especially in the core of the eurozone. German conservatives may not be motivated particularly by same appeals to European solidarity that motivate the European Commission, but the appeal to national security may be stronger.
The Eurasia Group note continues (our emphasis):
A Greece that exits the Euro needs to be prevented from turning into a failed state that leads to civil disorder and allows a beachhead for increased Russian influence. On the other hand, efforts to facilitate an exit by ratifying its return to a national currency (and even leaving open the possibility of a return to the Eurozone at a new exchange rate) will lead to a weakening of the legal and institutional order that underlies surveillance, coordination, and rescue mechanisms in the Eurozone. It would also embolden euroskeptics in the core countries. The EU and above all Germany will have to walk a very fine line between saving Greece from itself and saving the Eurozone from Greece.
In March, defence minister Panos Kammenos (a member of the junior coalition party Independent Greeks) threatened to “flood” Europe with migrants if a bailout deal wasn’t reached.
He added “even worse for Berlin if in that wave of millions of economic migrants there will be some jihadis of the Islamic State too.”
Despite the ugliness of Kammenos’ threat, there’s a grain of truth there — if Greece faces a renewed severe recession, a painful currency switch and a boom in social and political turmoil, it may be incapable or unwilling to police the growing flow of migrants arriving at Europe’s southern border.
According to humanitarian news agency IRIN, 27,000 refugees and asylum seekers arrived in Greece in the first four months of 2015. That’s more than five times as many as in the same period last year. Half of those turned up in April alone, largely arriving at the country’s many islands. The overwhelming majority are undoubtedly searching for safety and a better life, but Kammenos’ comment about Islamic State will not have gone unnoticed in Berlin.
Similar issues have sparked minor European crises before — in 2011 during the euro crisis Italy issued thousands of pan-European Schengen visas to migrants, leaving France threatening to suspend the system. If there was a significant breakdown in Greek social and political order, the situation could be even worse.
The cost of propping up Greece gets many Germans (and other Europeans generally) hot under the collar. But it might be a price worth paying if Grexit poses a genuine security risk to Berlin — even if Germany’s economy no longer catches a cold when Athens sneezes.
Germany brought in about €1 trillion (£707 billion, $US1.09 trillion) in tax revenue last year. Eric Dor at the IESEG School of Management estimates Germany’s total exposure to Greece runs to just over €70 billion from the two bailout programmes, and other implicit loans. So that’s 7% of one year’s tax take, or less than 2% of Germany’s GDP.
Spread across the five years since the bailout, and Germany’s contribution becomes minute compared to the size of its economy — less than half a per cent of the country’s output over the whole period. If any of these security worries come to pass, the country might find itself wishing it had simply paid up.
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