Monday, 26 January 2015

Greece's Political Bargaining Chips.

So we have had the EUQE and the Greek Election. There appears to be a huge sense of disappointment from the economic editors of the non-financial media that there hasn’t been a good story of market panic to play in exchange for the huge expenses involved in sending their person with a microphone to stand in front of the Parthenon. Here’s a tip to media cos. - Bluescreen backgrounds are so good nowadays you can keep your journalist in the basement of your cheapest to run building and they can still appear to be wherever they are reporting on.

Robert Peston, the BBC's economic editor, decided to explain the lack of movement by first listing all the things that could/may go wrong and finished by suggesting that believing things will be OK is ‘Naive’. Listen to him here min 37.30 onwards.  It sounds like he's hoping he will have a story in this one day.

And while we are talking about media Europe woes. Remember the Economist front page indicator alert calling for Euro-doom back in October? Let's have a Dax update,

What now? Tsipras is declaring allegiance to staying in Europe and considering debt renegotiation a no brainier. So what makes him think that those who have lent to him are willing to forgo their investments? The old banker saying ‘If you owe me $10,000 it's your problem, if you owe me $100bio it’s my problem’ springs to mind.

But whilst many feel that the main Greek threat is of killing (through default) the overseas debt hostages that it holds, this may not be the strongest card in Tsipras’s negotiating hand. If push really came to shove that debt could be buried in the ECB coffers and QE’d through an accounting fudge. Printing money to replace money that has otherwise vanished outside the EU with a Grexit, can hardly be considered inflationary. It’s more a loan guarantee backed by printed money.

Perhaps the biggest threat Greece can hold over Europe is over who they may 'have to' turn to for financial help in future and these new partners may not be the West’s best friends. I have been trying to dig up commentary on what would happen if Greece did go whole-hog and leave the EU, yet all I can ever find is references to economic outcome and deep delves into what happens to the debt. I am finding it very hard to find anything on potential political threats to Europe's most geographically important south-east border or opinion as to whom Greece may turn to for new allegiance.

It’s probably worth referring to a couple of old stories covering these issues as a reminder that stories of associations between Greece, China and Russia  are nothing new yet seem to have been forgotten in current commentary.

US Mediterranean Powers

China eyes Greek gateway to invest in Europe

However Greece is a member of NATO, so any such future link ups would be frowned upon yet could be used as leverage for compromise.

Greece and NATO: a long lasting relationship The Alternate Minister of National Defence of Greece, Yiannis Ragoussis, tells NATO Review how important NATO is for Greece, as well as about his country’s active membership in NATO

(bold highlights are mine)

'In concluding, I would like to underline that Greece’s current difficult financial situation actually contributes to the moral strengthening of its forces which are working harder than ever to maintain high standards and are making sure our people and our country is secure. Also, allow me to stress that Greece contributes positively in creating the appropriate structures and policies for regional security. Last but not least, enhancing security and stability collectively by forming Alliances has deep roots in Greek culture. Ιn ancient Greece, Athens took the initiative to form the first long lasting Alliance, the Delian League which has frequently been described as having many similarities with modern NATO. Greece, due to her geopolitical position and regional role, her active participation in all international organizations, her initiatives, her bilateral forms of cooperation and her explicit political will for peace, plays an important role in supporting the NATO of the 21st century'

This last paragraph highlights Greece's skills in alliance building but it shouldn't be assumed to always refer to building alliances with your friends.

But this FT article from 2012 is worth revisiting
Greece: Moscow’s new naval partner?

With this paragraph being of particular interest,

"But as western investors retreat, state-owned Russian and Chinese companies have gone bargain-hunting. Cosco, China’s state-owned shipping company, has already won a 35-year concession to operate the Greek port of Piraeus. Russia’s Gazprom is reportedly eyeing the privatisation of Greek gas company Depa and grid operator Desfa.
A 30- or 50-year deal that provides Russia’s navy with basing rights at Piraeus might one day make sense for both sides. Over time, the deal could bring Greece’s cash-starved government as much as $200bn.
It is impossible for Lucas Papademos and his technocratic government to cut such a deal, in part because Greece’s Nato allies would strongly object. But a future Greek coalition led by the New Democracy party, under enormous populist pressure to raise money and to resist demands from Berlin and Brussels, is another matter."

That last line sounds as though it could now be invoked. If for nothing else but a very strong negotiating weapon.

Finally, let's imagine one more threat that Greece could hold over the EU. They could set up as a financial centre happy to handle the grey money of the world to a point that would make previous ventures in Cyprus look positively schoolboy. Sitting outside the EU they could also sell themselves to financial institutions as environments to operate from free from the growing strains of EU regulation (including bonus caps).   Just a thought....


ntwsc said...

And a jolly good thought it is too.

I don't know if it's still the case now, but I remember seeing statistical per capita comparisons a few years ago, when austerity measures were first being drawn up, of armed forces across the world - and Greece came out tops.

Anonymous said...

Have to wonder where the Russians would get the funds to invest in Greece in a meaningful way outside the energy and power transmission sectors? Their navy would have to see a huge hull building program to justify port expansion in Crimea and Piraeus. China a more likely investor but what would they buy ? Hellenic Aerospace ? There's ample scope for Beijing and Moscow and Tehran to create some geo-strategic mischief but probably not much more than that.

Leftback said...

Ah yes, Peston, what a sad case. I suppose he couldn't find this Chapter in his Macro textbook from Oxford. Imagine a real Socialist government being elected and the world not ending....!!! The US media do the same thing, as soon as there is a crisis they ship some bird to Athens and then they are a bit miffed when it doesn't go crisis... er.

If it gets cheap enough, China and Russia would buy the lot. That's one doomsday Greek scenario, and the other is the oligarchy returns to their favourite device and brings back the Colonels - government by army.

This is why there is no way that the EU will let Greece go, Syriza or no. Renegotiation by maturity extension is my bet. Buy ETE and HTO and you'll be pleasantly surprised to find them still in existence next year and making dividend payments the year after. Sell hope, buy despair.

Oh, btw, cue a raft of weak US macro data this month, probably starting with Q4 GDP later on in the week. 3...2...1....

Polemic said...

Nice to have you back ntswc,

Anon - agree with endgame probabilities but like low delta options, they make not come off but there mat be money to be made on the way as perceived probabilities change. I just don't see anyone mentioning Greece's bargaining chips with the EU other than debt and the economy.

LB - thanks. Tbh my preferred route is a negotiated settlement but there will have to be teenage tantrum year old tantrum versus steady parents rule enforcing. Of course at some point the teenager sets off down the road threatening not to come back, but hey , that's just part of the game.

hipper said...

Hi Polemic, these seem to indeed be considerations which are not very much discussed in the media. The main topic are only about economic implications.

I don't know if it's politically correct to discuss this (but hey thankfully I'm not a politician), there are also the potential long term demographic implications. And with this I mean immigration.

If Brussels wants to really enforce austerity, Mr. Tsipras could respond with a nod and say that Greece may no longer maintain it's border patrol unit, thus considerably leaving the outer border of the Schengen zone much more vulnerable (especially towards Turkey and the rest of Middle East). So essentially they could indirectly use the "flood of immigration" bargaining chip also.

Like you pointed out there are really very many other potential chips ready to be laid out on the table. The future winner of this tug-of-war seems to be clear from this point of view, unless Eurocrats want to try winning the world stupidity contest and ultimately get their respectful, representative debt-ladden countries in even more doodoo.

Polemic said...

hi Hipper, lovely to see you here as well as at the other place.

Fully agree with all of that. So it really argues against any wishy washy compromise that could be subject to ongoing argument. they have to nail this down now or else EU is going to be under continuous threat of blackmail along those lines. Rather than being half hearted EU may want to cut out the toxic infection and reestablish stronger borders one stage west.

Anyway, it's all just posturing at this point but the first development yesterday that Greece was opposed to Russia sanctions and is complaining that they hadn't been consulted is an interesting glimmer as to the way this may be playing out.