Geopolitics Will Trump Economics in Greece

It seems that other people are finally catching on.

This is why it’s often repeated here over and over again for years now (See also HERE, HERE, HERE and HERE) that Greece plays too much of a strategic role in Europe and will not be let go, although at times it seems it’s teetering right on the edge of the abyss and threatens to bring the world down with it. Although the latter still might happen, Greece isn’t going anywhere.

Whether it’s with today’s European Union or tomorrow’s planned United States of Europe after the EU crumbles, Greece will stick around. Europe does not want Russia (and China) directly on their continent. The Russians having strategic Kaliningrad is still bad enough. If a deal with Russia were to go through, you can bet there will be Soviet military bases within months — because that’s the cost of saving their necks.

Greece is also too important from an energy perspective and, whether the oil & gas comes from the Middle East or Africa, has the potential to be a critical energy hub for all of Europe. This would break Russia off of Europe’s back and Greece would rebound and become awash in cash.

In the end, we’ll still have to wait and see what exactly happens but it’s hard to believe Europe, mainly Germany’s Fourth Reich, will let an opportunity like this escape. Come hell or high water, before or after the aftermath in the current situation, Greece will remain reined in.

 

Based on the continued failure of the negotiating parties to make any substantive progress in the talks over Greek debt payments, the financial world is tied up in knots over a possible Greek exit from the European Union. The uncertainty has manifested in both high and low finance, with a sharp sell-off in bonds, particularly EU and Greek government debt, and heightened retail withdrawals from Greek banks as depositors become wary of capital controls that would be imposed in the case of an exit. All concerned parties should likely breathe easier. Despite Greece’s almost complete lack of financial integrity, neither NATO nor the EU can afford the political cost of a Greek exit from the EU.

The unacceptable specter lurking behind the EU negotiators is that, if Greece is shown the door by the EU, Russia or even China might step in to provide financing to Greece in return for a strategic foothold in Western Europe and gateway to the Eastern Mediterranean. This is a possibility that Europe cannot abide. In short, international political ramifications will trump any economic or financial issues.

As reported several months ago in this column, modern Greece has been used continuously by Europe as a bulwark against unwanted incursions. In the 1820s, Greek independence from Ottoman Turkey was financed and supported by Western powers as a way to contain and rollback Turkish influence in the Mediterranean. In the 20th Century, Greece became a key battleground of the Cold War, with the West expending considerable blood and treasure to ultimately keep socialist Greece from falling into the Soviet orbit.

Although the Greeks received countless sums from abroad, Greek governments have been notoriously feckless, and have been instrumental in ensuring their nation’s economic demise. By opting for generous socialist entitlements and blatantly anti-capitalist regulations, Greek governments decided to borrow irresponsibly to meet its obligations.

With the formation of the European Union (EU), strenuous efforts were made to include Greece to prevent the rise of Communism. This encouraged the surreptitious acceptance of untruthful economic statistics to facilitate Greek membership, both of the EU and the Eurozone.

As a result, whatever the eventual financial costs to EU taxpayers of a Greek default, the political costs of a Greek exit are likely to be seen as unacceptable. Therefore, after much posturing, delays and threats, I believe that the chances of an actual Greek exit are far lower than are commonly believed. Most likely the EU will allow a covert Greek default, disguised for the time being by extended repayment schedules, bogus refinancing formulae and possible delayed haircuts as bonds mature. They may insist that such moves are not a technical default. Despite that absurdity, our obedient press corps may even concur with such a characterization, and investors may be so thrilled that a relief rally occurs in stocks and bonds. Extend and pretend will once again be the only acceptable manner to confront our intractable problems.

Full article: Geopolitics Will Trump Economics in Greece (Euro Pacific Capital)

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