Europe's manhandling of Greece is a strategic gift to Russia's Vladimir Putin
'Greece is a sovereign country with an unquestionable right to exploit its geopolitical role,' says premier Alexis Tsipras in Moscow
By Ambrose Evans-Pritchard
9:56PM BST 08 Apr 2015
A Greek veto on sanctions will embolden Hungary's Viktor Orban to join the revolt, this time in earnest. His country has just secured a €10bn credit line from Russia to expand its Paks nuclear power plant, a deal described as a "purchase of political influence" by a leading critic.
Slovakia is quietly slipping away from what was once a united (if fractious) EU front to deter further Kremlin moves into Ukraine. There is safety in numbers for this evolving constellation, what Mr Putin's foes would call the EU's internal "Fifth Column". Brussels can bring one to heel, but not a clutch of rebels. It is becoming powerless.
On Wednesday Alexis Tsipras laid a wreath at the Tomb of the Unknown Soldier
Needless to say, a failure to renew sanctions at a time when the Donbass is still under the control of Mr Putin's proxy forces would drive a wedge between the US and Europe, further draining the life-blood from the Atlantic alliance and what remains of the Western security structure. But it does not stop there.
The EU project is close to unravelling in the East. We thought we knew where we stood when the final decision was made in June of 2003 - in Athens of all places - to admit the former captive nations of the Soviet bloc, all clamouring to join what seemed to be an enlightened club of democracies under the rule of law.
I was there for The Telegraph when Tony Blair stood at the Stoa of Attalos, near the colonnades of Socrates and Plato, and exalted in their newly-won freedom from "dictatorship and repression".
Now we have a government in Budapest that scoffs at press freedom and judicial independence, and a government in Athens that is desperately defending its own democracy against the EU itself. Mr Putin merely has to bide his time and the EU's southeastern flank will fall apart.
Europe's creditor powers have warned Greece not to trifle with them, or to play off Brussels against Moscow, but seem strangely unaware that they too must make concessions to prevent matters spinning out of control, for them as well as for Greece.
Their imperious reflex is instead to issue tone-deaf demands to Mr Tsipras, ordering him to ditch the Left Platform within his Syriza coalition and form an alliance with the discredited remnants of the old regime - the same oligarchy that plundered the country.
"They are trying to negate the results of our election. It is a naked flaunting of the democratic process and will generate a very strong reaction," said Costas Lapavitsas, a Syriza MP.
"Whenever foreign powers try to meddle in this way it leads to the opposite results. Tsipras knows that it would be the end of his political career if he followed such a disastrous course," he said.
Alexis Tsipras meets Vladimir Putin in Russia
Syriza have had a steep learning curve. They imagined it possible to forge a common front with Portugal, Italy and Spain against the austerity regime, hoping that France's socialist leader would fight their corner in the EU Council. "They sinned by an excess of optimism," said Professor Jacques Sapir, from the École des Hautes Études in Paris.
They discovered instead that the conservative governments of Spain and Portugal - "Axis Powers" in a revealing outburst by Mr Tsipras - were their most implacable foes, and for obvious reasons. The Iberian leaders have staked their own futures on compliance with austerity, and both face populist threats at home if Syriza wins any concessions.
Prof Sapir said Syriza had made the same sort of mistake as the Bolsheviks in 1917, who dreamed that their example would set off a parallel revolution in Germany. When it failed to do so, their strategy collapsed, forcing them to fall back on autarky. A chastened Syriza seems increasingly reconciled to ejection from EMU, though keenly aware that this can only be justified to the Greek people if forced upon them.
"The Greek government has understood that it cannot find any common ground with the Eurogroup and the European Central Bank, unless it accepts unconditional capitulation," he said.
One Greek official told me Athens is not even asking Russia and China for serious money at this stage, telling them it would be pointless. Syriza is already looking beyond, exploring who can help them rebuild after the inevitable default - whether inside EMU as they once hoped, or outside EMU as they now fear.
Russia is not rich enough to rescue Greece. It is in a deep crisis of its own - facing economic contraction of 3pc this year - and risks Soviet-era stagnation if oil prices settle near $60 a barrel. Most of its $360bn foreign reserves are needed to plug holes and to help Russian companies roll over hard-currency debt. Yet it is not broke either.
Mr Putin said he discussed "cooperation in various sectors of the economy, including the possibility of developing major energy projects" rather than any request for aid. That is how diplomacy is conducted at this level.
The litmus test of what is really happening will be whether Russia buys Greek T-bills coming up for sale, relieving pressure as Greek banks are told to step back by the ECB. Athens must roll over €1.4bn on April 14 and €1bn on April 17, and this may be stressful. China has already bought €100m of T-bills as a show of moral support.
WHAT GREECE OWES AND WHEN : TO SEE CHART CLICK HERE
Syriza has enough money to pay the International Monetary Fund €458m on Thursday, but this leaves it short of money to meet €1.7bn of pensions and salaries five days later. They have already scratched the cupboard bare, though small sums can perhaps be conjured from hospital funds or by raiding accounts at the central bank. We would not necessarily know whether Moscow has offered any sort of bridging loan - perhaps indirectly - to cover this immediate shortfall.
The EMU authorities have signalled that they may be willing to disburse some funds once the IMF has been paid, preserving the formal niceties of the EU-IMF Troika. But as The Telegraph reported last week, Syriza fears a trap. "They are trying to put us in a position where we either have to default to our own people or sign up to a deal that is politically toxic for us," said one official.
GREECE´S €315BN DEBT PILE : TO SEE CHART CLICK HERE
The situation was so serious by then that finance minister Yanis Varoufakis flew to Washington on Easter Sunday to break the impasse with the IMF's Christine Lagarde. Greece agreed to meet its IMF payment: the IMF in turn agreed to show "utmost flexibility" over Syriza's reform plans. This looks like an IMF pledge that the Greeks will not be left high and dry on April 14.
Syriza has wisely decided that it would be dangerous to default on the IMF, or even to fall into arrears. No developed country has ever taken this step. Peru's Alan Garcia - the Tsipras of his age - did default in the 1980s and later said it was the worst mistake he ever made.
If they have to default, they would rather pick their fight with EU creditors and above all the ECB, enemy number one after it took the pre-emptive political decision of cutting off a key lifeline for Greek banks within days of the Greek election.
As it happens, Greece must pay the ECB €194m in interest on April 17. Even if Greece manages to cobble together enough money to meet rolling demands through the Spring, it cannot possibly cover €6.7bn in bond redemptions to the ECB in July and August unless there is a fresh bail-out programme.
Nor does Syriza wish to pay, given that the ECB bought these bonds in 2010 to bail out German and French banks and to prevent an EMU-wide banking crisis, not to help Greece. The Greek parliament was never consulted. Nor too does Syriza see much advantage in delaying the agony. "If it is going to happen, what is the point of waiting?" said one minister.
A former ECB official said the fear is that Greece will kick off with a selective default to Frankfurt, judging this the easiest political target. It would cover both bonds and €80bn of "Target2" liabilities to the rest of the ECB network that have built up automatically due to capital flight.
"The crucial point is that Target2 liabilities are not backed by collateral. The Greeks can simply abolish the Bank of Greece on a Friday evening, and create a new central bank to be ready on the next Monday morning. There is no court in Europe that can enforce a payment against a Bank of Greece that no longer exists. This is their best chance of protecting the Greek people but it will not be pretty for the ECB," he said.
If Syriza pulls the pin on the Target2 system it will cause trauma for the ECB - and possibly a forced recapitalisation at the cost of member states - and set off a political storm in Germany.
Hans-Werner Sinn, from the IFO Insitute, has long been warning that Germany and other creditor states are on the hook for huge amounts through Target2 that have never been acknowledged, or approved by the Bundestag. His jeremiads have prompted dismissive replies from the Bundesbank and the political authorities.
Yet if these losses are crystallized in Greece, it is far from clear whether the German parliament would continue to allow Target2 to incubate much greater potential losses in the rest of southern Europe. Without Target2, the eurozone is finished as a functioning monetary union.
Mr Putin must surely be smiling that he has won such an easy trick with such a weak hand. He watched in horror as the Soviet Union went into self-destruction a quarter century ago. This time he has the satisfaction of watching his much richer enemies tear themselves apart over mere money.