Greece and the Euro – Finance or Geopolitics?

The seeds of the current financial crisis facing Greece may well lie in the Marshall Plan to rebuild Europe after the Second World War – The European Recovery Program (ERP) was known as the Marshall Plan in recognition of the part played by retired General George Marshall, who had been appointed as the U.S. Secretary of State by then President Truman, in putting the ERP into practice.

The Marshall Plan

The end of World War II saw the start of the Cold War, the political confrontation between Russia and the United States for dominance, as the world was divided between the two spheres of influence. Despite early efforts to include Russia and the Eastern European countries as beneficiaries of the plan, which, of necessity included the rebuilding of Germany, assistance became limited to Western European Countries including Greece. During the period 1948 to 1952, a total of $12.7 billion was made available to the 16 Western European countries that had been affected in varying degrees by the War. Greece was the beneficiary of $376 million to assist in rebuilding the country economically and industrially. Strategically, Greece was an extremely important bulwark against Soviet expansion into Western Europe and as such received favorable treatment under the Marshall Plan.

Alexis Tsipras

Fast forward to the current leftist government in Greece led by Prime Minister Alexis Tsipras who has flirted with Communism for a large part of his adult life. He joined the Communist Youth of Greece while a student in the late 1980s after which he joined the ranks of the left wing, becoming considered as more of a political centrist by the time he entered Parliament in 2009. His election was, in no small measure, due to a manifesto that promised to return Greece to economic health without the austerity programs imposed on the country by the European Union (EU). The reality is that since then, he has had to face the EU, with Chancellor Angela Merkel of Germany taking the lead. Added to this, Tsipras has quickly learned that there can be no free ride and that the bailout money loaned to Greece with the austerity measures as a condition, has to be repaid on due date. The major sticking point is Tsipras’ reluctance to impose further austerity measures or to continue with measures already in place.

Greece and the IMF

Facing a repayment of $1.5 billion to the IMF (International Monetary Fund) due on June 30, representatives of Greece and the IMF met earlier in the week, a meeting that resulted in a walkout by the IMF delegation.  In the words of IMF spokesman, Gerry Rice, “There are major differences between us in most key areas. There has been no progress in narrowing these positions recently, and thus we are well away from an agreement.” The impression is given that the lack of flexibility on the part of Greece delegation in any movement towards meeting the demands of the IMF led to the breakdown in talks.

Russia and Greece

A failed eurozone state is the last thing the EU wants to contend with and the ever present possibility of President Putin of Russia becoming involved is very real. Tsipras will be headed for St. Petersburg for another meeting with Putin on June 18 with the result of the meeting anticipated with bated breath.

Economic Fallout

The optimistic note early Wednesday of possible German assistance to Greece lifted European markets in early trading after three days of steady losses, only to lose some of the gains after the IMF walkout announcement. An example of this is the Stoxx Europe 600 Index which ended the day on 393 points, down from the intraday high of 395.5. Euro (EUR) values initially dropped after the Wednesday news, but have shown a slight recovery, however not to previous levels. On Friday, the EUR/USD gained 0.03% to close the week on a strong note at 1.1262.

Conclusion

Greece Finance Minister Yanis Varoufakis said Saturday that, in his opinion, Europe would not allow Greece to exit the eurozone despite fears that such a move is imminent. Questioned on BBC Radio 4 as to whether he felt the IMF were bluffing he replied, “I hope they are”. He further blamed the failure of the talks with the IMF on the fact that these were yet another version of the failed proposals of the past. The fear is that Greece will run out of money with the payment of the $1.5 billion due on June 30. The eurozone Finance Minister will meet in Luxembourg this Thursday, a meeting viewed as a deadline for Greece and the euro.

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