As the range of options for Greece appears to dwindle by the day, is it time for Athens to consider a strategic alliance with Russia as part of some plan B? We may find out this Wednesday when Alexis Tsipras is due to visit President Vladimir Putin of Russia. Greece’s prime minister might be tempted to default on all its foreign creditors and bondholders, exit the Eurozone and get Moscow to provide some short-term funding to prevent a collapse of the banking system. In exchange, Tsipras could offer to veto the extension of EU sanctions against Russia. Athens could also boycott the trans-Adriatic pipeline, through which the EU hopes to tap Caspian gas bypassing Russian territory. The longest section of the pipeline, over 500km, would run through Greek territory.
If only it was so simple. For all the speculation about the logic of such a deal, I remain profoundly sceptical for a number of reasons.
The first is that Putin would probably not be able to bankroll Greece to any serious extent. The Russian economy is in bad shape. According to the latest Russia report by the World Bank it will decline by 3.8 per cent this year, mainly due to the fall in oil and gas prices. The sanctions did not have much of an impact initially. But they have effectively killed off investment, which in turn will lower future growth. The fall in energy prices has also made the sanctions more potent.
Russia is, of course, not about to run out of money, but its foreign exchange reserves are falling noticeably. The less headroom it has, the more vulnerable it will be to western sanctions or any further economic shocks.
The Greeks will need to consider to what extent they would want to be tied to a country that will be clearly focused on its own economic crisis management. The Russians, meanwhile, will be aware how many billions of euros Eurozone members have sunk into the Greek economy. Moscow would not be in a position to bear similar losses.
Second, the relationship between a member state and the EU is based on international treaties. Member states have legal rights, and they have an independent court of justice to defend those rights. If they have a bilateral deal with Russia, they are on their own. There will be no question about who calls the shots. So they will have to ask themselves: do they really want Putin as their creditor? I am just trying to picture a scene of what would happen if the Greek finance minister were to give one of his instructional PowerPoint lectures to his Russian colleagues. When he does this in Brussels, people try very hard to stay polite.
Third, consider the possibility of a rapprochement between Russia and the EU — maybe after a future agreement over Ukraine. The sanctions would be lifted, and relations would slowly normalise. Where would that leave any new strategic Russian-Greek relationship?
And finally, consider the political dynamics within the EU and in the European Council of heads of government in particular.
Yes, Athens has a veto on the renewal of sanctions. But it is also a recipient of EU funds. From that perspective, a totally confrontational attitude would backfire financially. Do you really think the EU would continue to pay subsidies to Greece if Athens were to exit the Eurozone and tie up with Russia?
So what should Tsipras talk to Putin about? My advice would be to stick to the weather and sports, and then quickly return home and work on a coherent economic strategy — one that does not rely on Russia. My own preference would be for a Greek default inside the Eurozone, done in a way that Athens is supported during the transition.
There is clearly a danger of a double miscalculation. The EU might underestimate the political and economic consequences of a Grexit. And the Greeks might overestimate the potential of Russian plan B. It will take some serious economic diplomacy to prevent the calamity that would arise if both sides miscalculated
—Financial Times
