Greece's Latest Confounding Developments

April 9, 2015Greeceby Deena Zaidi

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Startling developments from Greece seem to occur daily.

Greece’s bailout extension expires in May this year and its inclination towards the members of BRICS seems inevitable.  For long, Greece’s economy has been bringing troubling news to the Eurozone. The EU members have time and again tried their best to keep Greece in the common currency zone but bailouts and downgrading has got the worse out of Greece. With high unemployment rate, around 60% of Greek population (under 25) still remains unemployed. The borrowed money has only helped a single section – Greek Banks while the people continue to face unemployment, low wages and low pensions. With 18% of the country’s population not meeting food needs, 32% still remain below poverty line and have no national health insurance.

By January 2015, Greece owed €317 bn (£240bn) to IMF, ECB, EU and others. With the new government under Alexis Tsipras, Greece had raised its hopes for survival and economic development.  However, the debt crisis in Greece seems to only deepen and has taken a different turn with some new developments in the Greece’s strategy - mostly captured in the statements of Greek Defense minister, Panos Kammenos.

1. Demand of $300 bn from Germany: Greece went on a different tangent this week when it demanded $300 bn (a sum that could offset all of the debt Greece owes to European institutions) in compensation for war damages from Germany. Even though this issue is not new (been previously brought up in 2010 and 2012 by Greece), it comes just a few days before the IMF payment deadline. The amount of $300 bn could be much larger, if interest payments were taken into account, according to Costas Isychos, the deputy defense minister of Greece. The defense minister of Greece, Panos Kammenos said Greece had obtained records held by the U.S. military that review the extent of damage to private and public property during the Nazi occupation. While Germany shrugs off this statement, the Greek prime minister, Alexis Tsipras says the timing is purely coincidental and has nothing to do with the economic stress that Greece is facing.

In 1960, Germany had already settled the repatriation agreement by paying 115 million marks. No protest had been done by Greece at that time and it was, hence, considered settled. Greek prime minister has suggested confiscation of German assets, if Germany refuses to pay. These actions by Greece have definitely raised tensions amongst EU member countries. Even though the zone has supported Greece time and again, it remains a puzzle how it could keep on supporting Greece through more bailout and further bailout extensions. With payment deadline approaching, Greece now seems to be approaching other nations.

2. Repayment deadline on 9 April: Greece owes $500 million to the IMF and they vow to meet the deadline. Recently, Greece has been much of a worry for its creditors but it tried to convince its lenders that it would be honoring its debts. The Greek finance minister had recently met the head of IMF; Christine Lagarde to assure that the debt repayment obligations will be met on time. The ministry had said: “Mrs. Lagarde ... stressed that, in Greece’s case, the Fund is willing to show utmost flexibility in the way in which the government’s reforms and fiscal proposals will be evaluated.”

3. Visit to Russia: With Greece Prime Minister visiting Russia just before the IMF payment deadline, matters could be of some worry for the Eurozone. However, Greece has not formally or directly approached for any financial help from Russia. But a loan from Russia or China could help the struggling economy of Greece, which at present is looking for some breathing space. According to Observatory of Economic Complexity, Russia accounts for 11% of Greece’s total imports and Germany and China are close to 9.5% and 5%, respectively. The financial help does not necessarily have to be in the form of loans but could also come in the form of increased trade and tourism between Russia and Greece. Currently, Russia and Greece might be different nations in the same boat. While Russia is burdened by sharp slump in oil prices and western sanctions, Greece carries years of heavy debt and several economic issues like high prices and unemployment. How they benefit one another in this time of crisis remains a bit difficult to fathom at this point.

4. Possibility of Grexit: Greek Defense Minister Panos Kammenos warned EU that there could be a possibility of Greece exiting the common currency zone as Berlin and Brussels were trying to lead Greece to an economic catastrophe. Syriza and the other opposition party had condemned his statements and termed it as ‘harsh and unjustified’. He warned that if EU representatives continued with this suppression on Syriza government then, it will grant its illegal immigrants the permission to travel to other EU member states so that they can head “straight to Berlin” “If Greece is expelled or forced out of the eurozone, waves of immigrants without papers, including radical elements, will stream from Turkey and head towards the heart of the West,” Kammenos told The Times. He further added that if Greece decides to exit, then other countries like Italy and Spain could follow next.

5. An inclination towards BRICS: Minister of Defense, Panos Kammenos, in an interview to Greek Radio on March 13, warned that if the European Union, the European Central Bank, and the International Monetary Fund (known as the Troika) cut off Greece, the country will turn to the BRICS for funding. BRICS currently holds 21% of the world’s GDP with 40% of world’s population in Brazil, Russia, India, China and Russia. In 2014, Russia faced falling oil prices with heavy sanctions from the west. But the fate of Russia did not stop it from becoming the first country amongst the BRICS members to sign on establishing the group’s New Development Bank. With this development, BRICS aims to lend out to both member countries and non-member countries too. Russian Foreign Ministry Ambassador-at-Large Vadim Lukov said on Friday “Specifically, China will be able to take out only 50% while Russia, India and Brazil will be entitled to 100% and South Africa to 150%.” This could be looked at as an opportunity for EU member countries that are not too happy with the austerity measures imposed by the stronger EU members i.e. Greece, Portugal, Spain and Italy may find BRICS funding as an alternative to the troika.

Greece at present is looking for any financial and economic support as the deadline for repayment approaches. It could be hit with stricter austerity measures. Greek's Prime Minister Alexis Tsipras's Syriza party argues that the EU's previous bailouts and rescue packages have only reached the banks and the people of Greece. The defense minister, Panos Kammenos said, "People have not benefited from the so-called aid packages, which have reached only the bank. People don't have any work, but prices continue to rise."

5 Startling Developments in Greece is republished with permission from the Financial Keyhole