Greece and Russia have signed a $2 billion dollar gas pipeline deal that will create some much needed jobs in Greece.
But Russian President Vladimir Putin and Greek Prime Minister Alex Tsipras may also make a deal on aid that would help Greece avoid defaulting. Greece has a $1.6 billion payment due to the IMF on June 30, and failure to make the payment will start a chain of events that could lead to a Greek exit from the euro.
Russia said Friday it would consider giving financial aid to Greece as the cash-strapped nation runs out of time to resolve its long-running debt crisis and avert an exit from the eurozone.
“We will support any solution on regulating the Greek debt crisis that is suggested by Greece and our European partners,” Russian Deputy Prime Minister Arkady Dvorkovich said, according to the state-run TASS news agency. “The most important things for us are investment projects and trade with Greece. If financial support is required, we will consider this question.”
Russian President Vladimir Putin’s office also said Friday that Russia would consider giving loans to Greece, adding such aid should be considered par for the course for countries that are partners. Putin’s office stressed Greece has not yet formally asked for any financial assistance from Moscow.
The development came as Greek Prime Minister Alexis Tsipras met Friday with Putin in St. Petersburg, where the Russian leader was hosting an annual investment forum. However, Russian financial aid for Greece was not discussed between the two, Putin’s spokesman said later Friday.
Speaking earlier at the St. Petersburg International Economic Forum, Tsipras said that Russia’s role in the world was expanding and that Europe was misguided to think of itself as being at the center of the world.
What would Russia want in return? Putin wants to use Greece as a wedge with the rest of the EU to prevent sanctions on Moscow for their Crimea adventure being extended. But Putin’s leverage with Greece wouldn’t have to be that specific. Having an ally on the southern periphery of Europe who is also a member of NATO would be reward enough and given Greece’s dire fiscal and financial straits, Russia would be able to exploit the rift between Greece and the EU for years.
It seems improbable given the previous instances in the past 5 years when Greece has gone to the brink of default only to be rescued at the last by her EU partners. But Tsipras has become so poisonous in the capitals of Europe that there are some who are actually rooting for a collapse. An emergency meeting is set for Monday where Greece’s fate will likely be decided. That is, if it doesn’t become moot as a result of the teetering Greek banking system melting down:
The European Central Bank (ECB) intervened again Friday to prop up Greece’s banks, as savers, fearing their imminent collapse, withdrew record amounts of deposits.
Following the collapse of talks between Greece and its creditors—the European Union (EU), the ECB and the International Monetary Fund (IMF)—over the terms of a further spending cuts programme, billions of euros in deposits were withdrawn from Greek banks. This week alone €4.2 billion were withdrawn, including €1.2 billion on Friday.
To stave off financial collapse and a default on its overall debt of over €300 billion, Greece’s Syriza-led government requested that the ECB loan Greece’s Central Bank an additional €3.5 billion. The ECB, which loaned the Greek banks another €1.1 billion of “Emergency Liquidity Assistance” on Wednesday to reach a total of €84.1 billion, released additional money Friday, though it is unclear how much. According to some reports, it was just enough to tide Greece over until Monday.
Speculation mounted that Greece could even be forced to impose capital controls and limit deposit withdrawals as early as this weekend. The Financial Times commented that fear of Greek default on its €1.6 billion debt repayment to the International Monetary Fund at the end of June “is rapidly being overtaken by a separate—and possibly more dangerous—ticking time bomb: the solvency of Greece’s banks.”
The ECB’s strategy is to keep Greece faced with imminent collapse with the aim of ensuring that a deal is signed after Monday evening’s emergency summit of EU leaders, convened by President of the European Council Donald Tusk. It is an extraordinary and reckless example of brinksmanship—threatening not only the decimation of the Greek economy but a potential domino effect that could impact on the entire European economy.
There are whispers of a bank holiday in Greece next week, but even that may not help. Depending on the outcome of the emergency meeting on Monday night, the ECB may refuse to loan Greek banks any more cash. This would be a catastrophe for the Greek people, but how about the rest of the EU?
The contagion of a Greek banking collapse would be serious but limited, given that most other banks in Europe have had years to protect themselves from the fallout. And the ECB has also built a firewall around vulnerable bondholders, minimizing risk.
So it appears that the can kicking on the Greek debt crisis that the EU has been performing these last 5 years is finally, mercifully over and the endgame for Greece is upon them.