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The Geopolitics of Greece’s Exit from the Euro

Geopolitics has so far been absent from the eurozone crisis. But is that about to change? As banks, businesses and Brussels begin accepting the possibility that Greece may indeed exit the euro—until recently an inconceivable proposition—the political ramifications could be just as profound as the economic consequences.

Europe has been so consumed with putting out the fiscal fires that its attention has been diverted from the geopolitical upheaval threatening to engulf the eastern Mediterranean. If Greece falls then Cyprus will crumble as well. As the Financial Times explains:

The damage to Cyprus’s financial system, heavily exposed to Greek debt, would be devastating. Cyprus last year received a cheap €2.5bn loan from Russia in a gesture that reflected the Kremlin’s interest in protecting wealthy Russian depositors with billions parked in Cypriot banks. It may soon need more aid.

And if Europe cuts Greece loose, Russia may fill the void there as well. There are close cultural ties between these Orthodox countries, and both are like to join in a feeling of bitterness and exclusion vis-à-vis the West.

Americans often don’t “get” the Russia-Greek connection. In Ottoman times, Orthodox Russia was the protector of Orthodox Christians in the great Islamic empire and frequently used its diplomatic clout to defend the rights of its co-religionists. Greece looked to Russia as a reliable ally during much of the troubled period after modern Greece gained independence from the Turks.

The feeling is reciprocal. Russia received the gospel from Greek Christians. The Russian tsars married into the Byzantine royal house; the word tsar (or czar) is the Russian form of Caesar, indicating the strong Russian sense that Orthodox Moscow, after the fall of Constantinople, was the “Third Rome.” Much of modern Russian identity and sense of a unique place in the world is wrapped up in its civilizational connection with Byzantine culture and religion.

Mount Athos, the center of Orthodox monasticism and the spiritual heart of Greece, looms large in Russia. No less a person than President Vladimir Putin has made pilgrimages to this site.

There are other connections as well. Much of the Russian oligarchy’s money has been moved through Greek Cyprus, where the banking system has long been very close to post-Communist Moscow.

Israeli interests are also involved. As Turkish-Israeli relations have cooled, Greco-Israeli ties have warmed. The discovery of vast natural gas deposits in Cypriot and Israeli waters have pushed those countries closer together; indeed, the gas reserves may be large enough to make Cyprus self-sufficient in energy and turn Israel into a major gas exporter for the next several decades. Turkey doesn’t like this.

Meanwhile, the very large wave of immigration from post-Communist Russia to Israel has created new networks of business, investment, and trade between Russian-speaking Israelis and their families and friends in the old country.

The European Union is in retreat in the eastern Mediterranean. Turkey no longer sees its destiny in EU membership; if Greece and Cyprus either jump or are pushed from the euro, they will remain members of the EU, but that membership will mean something much less than it formerly did.

By reaching out to Cyprus and Greece in their hour of need, Russia may build some important new relationships to help compensate for their lost contracts and connections in Iraq, Libya, and perhaps now Syria. If Greece is floundering with a weak drachma and an economic meltdown, a relatively small amount of Russian aid and trade could go a long way.

The creation of the euro was a political as well as an economic event. Its break up will be a political event as well.

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  • Chase

    Articles like this, with interesting insights into contemporary events that are not always mentioned elsewhere, are why I keep coming back to Via Meadia! Since the site is free, sometimes we should pay for the service with a compliment.

  • Jbird

    interesting post. thanks

  • Kenny

    Good analysis, Mr. Mead

  • k.d.

    thx a lot for the insights

  • Mark Michael

    Ditto. I had some vague idea of these relationships, but this post brought them to the forefront w.r.t. Greece & the EU. Thanks professor! The find of natural gas sparks the thought that the Greeks, Cypriots, et al could help alleviate their financial crisis – if they can exploit it competently and not let corrupt practices creep in. (Hmm. Contract it out to responsible major companies, I guess.)

  • Jim.

    Would the Russians be able to support the Greeks in the manner to which they had become accustomed? Would they even bother?

    Something tells me that the Germans would be better off with a northeast-facing Greece (after all, Germany has made overtures eastward recently) than it would be permanently pumping, what’s the recent number, 8% of their GDP into a persistent “bailout” fund for Greece et al. 8% could quadruple their defense budget, after all.

    Russian influence in the Eastern Med might make things more interesting in some ways… it would drive Turkey further into our embrace, probably; that would give us a bit more influence with them, which could be a good thing.

    It’s a possibility that bears some thinking about, certainly.

  • thibaud

    That the Russians would step in has been obvious for some time to anyone who was paying attention or who knows basic facts about eastern European finance.

    It’s not “the Russian oligarchy’s money” that moves through Cyprus, btw – it’s ALL money invested in the Russian capital markets, from whatever source. The Russian “oligarchy” launders its money, ie the really big sums, in places like Dubai and Lichtenstein, not Cyprus.

    Cyprus is where all the RTS stock trades are cleared. It was set up this way in order to ensure efficiency, rule of law and safety from over-zealous or corrupt Russian officials so that investors could safely invest in Russia.

    The Cyprus solution has worked out very well, and provides a good venue for handling whatever will replace the ruins of the Greek economy.

    I posted about this at Via Meadia two weeks ago:

    Greece’s banking system is in tatters, and the Russians are experts in maneuvering around an economy in which credit is scarce, attachment of collateral is hard to come by, and barter dominates basic transactions.

    thibaud says:
    May 8, 2012 at 2:54 pm

    “since nobody but Germany has any money to give, that’s all there is to say about it”

    The Russians have plenty of money to, er, give, and have already begun to do so. Not just their sovereign wealth funds but individual oligarchs (including GazPutin himself, we’re told) will move quickly to snap up Greek assets as soon as the inevitable dropping out/devaluation occurs.

    Russian sun-seeking vacationers will start going to Greece instead of Hurghada or Sharm. Large portions of Greek real estate will come under Russian ownership. The Greek banking system will become heavily dependent on Russian funding.

    The Second Rome may be lost to the infidels, but the Third Rome will soon step in and extend its financial dominion over Greece.

  • f1guyus

    Cool. Let the Russians support the Greeks. If they can. Matter of fact let’s offload all the takers onto Putin and his buddies. They’ll all be broke in five years.

  • thibaud

    @#8 – not likely. Wish I could buy myself a Greek island or two, or a few shipping companies, at the fire sale prices that are going to appear in the next year or two.

    In the late 1980s and early 1990s, the Japanese bought US trophy assets at peak prices. Soon the Russians will be buying Greek assets at rock-bottom prices.

  • hanmeng

    There may be a Russia-Greek connection, but the link between the word tsar and Caesar is pretty silly. Why not claim another connection based on Cyrillic and Greek?

  • Rhodium Heart

    I know the “tar baby” analogy is horribly un-PC to invoke. But since you’ve laid out the case as to why the Greek tar-baby would be attractive to Mother Russia, is it not in the best interest of the U.S. for Russia to be entangled Greece? Greece is a failed nation (albeit with great beaches) that has failed to contribute to civilization for 2500 years. Seeing those over-pampered America-hating work-o-phobes brought to heel by Russia would provide great comedy at no geopolitical cost.

  • lewy14

    WRM – the conventional wisdom in financial circles right now is that Europe (using the ECB as its institutional instrument) will rescue Greece because a Greek Euro exit entails risk of an uncontrolled contagion (like Lehman’s collapse in ’08).

    Baseline scenario – the EU “Troika” retains its demand for austerity but kicks the can down the road. SYRIZA et al form a government in Greece which accepts austerity “much later” in return for a hefty bailout now (and does not renounce debt or leave the Euro).

    SPD’s recent election gains weaken Merkel’s hand – fiscal hawks in retreat – ECB has sufficient policy tools and political cover to stop the bank runs, effectively becoming a lender of last resort. Can is kicked down the road a good 18 to 36 months.

    No room for Russia in this scenario. If anything the potential for Russian involvement in the case of a meltdown makes the baseline scenario _more_ likely.

  • gringojay

    Greece public will have to bite the bullet of leaving the Euro, sooner or later. The early years of Drachma currency will be tough, no doubt what so ever for many Greek people who will suffer a lot of loss.
    Then the Israeli gas pipeline through Cyprus to Greece will come online with energy resources the western Europeans want. The western Europeans will be in dire straits from their misguided renewable energy policies & have to pay the Greeks transit fees in hard currency (Euros or Dollars) for importing essential gas.
    Greece will be out of the Euro a while by then & woe to creditors which behaved punitively once Greece has cash to show those ready to renegotiate it’s national debt burden. In that interim Russia, with it’s tenacious naval bases on the Syrian coast, will get Greek good will if the Russians decisively help deter any Turkish threat to the Cyprus/Greece gas/pipeline getting to where the tap can be opened to Europe.
    The incidental involvement with Israel & their lead feeding it’s off shore gas into the pipeline will be the cost of real politik for Russia. Both countries can offer some material support to ease the transitional needs of the Greek people that doesn’t involve paying money toward Greece’s national debt.

  • John Frary

    In the 19th century Jakob Fallmerayer infuriated Greek nationalists with his thesis that Greeks of the classical era had been wiped out by plague and invasion; the modern “Greeks” descendants of Slavic and Albanian invaders. They claimed he was a paid agent of the czar, who was scheming to include Greece in a pan-slavic annexation of the Balkans.

  • Karensky

    Well Mr. Mead you are on to something. The Russian alphabet comes from St. Cyrl, who created it. He was Greek. It was to Constantinople that, I believe, Tsar Ivan I chose his religion based largely on the extravagance of Hagia Sophia. Peter I fled through Greece at the end of his war with Charles XII. It was Greece that was one of the hottest spots at the onset of the Cold War. Does all of this make Greece to soon be a Russian protectorate? We will see. Certainly the Greek Communists and Socialists will be looking to Putin for succor. We are living in interesting times.

  • SamC

    This article confuses (many do) the EZ with the EU. A Country can be part of the EU without being an EZ nation.

    I have NEVER heard of a suggestion to cut Greece or anyone else out of the EU, but Greece and Germany cannot use the same currency and without a fiscal disaster.

  • iGout

    Not just Greece. Word is that Portugal is doing OK, but Spain and Italy might be open to Russian largess. So we might be soon looking at an anti-Brussels in Moscow with most of W. Europe as members. Between the two, I much prefer Moscow. I like the double-headed eagle more than that dorky circle of stars.

  • wanderer

    Jim et. al.

    “The Greeks” haven’t seen a dime of the various bailouts. The bailouts have been, not of the Greeks, but of the creditors of the Greeks.

    Keep in mind that for every underwater borrower there is at least one banker who didn’t do his math right.

    And as for the Russian angle, I’d expect that as soon as the Greeks line up alternative financing you’ll see them repudiate their debts to the Western financial system.

    And Mr. Market will find *that* Very Exciting!

  • teapartydoc

    This is one of those times when a writer hasn’t said anything I didn’t already know, but put the facts to me in a way that alters my thinking about them. Bravo.

  • Jim.

    If Russia’s going to be picking up Greek assets at fire-sale prices, so are countries like Germany (or even the US.)

    At that point, the Germans would at least see something in return for the money they sent southward, and would not be locked into any sort of permanent indenturing arrangement for financing Greek (and Italian, and Spanish, and even French) extravagance.

  • iGout

    It’s a mistake to look at this through the rivalries of the cold war. Putin’s Russia strikes me as the last standing 19th century power, unashamedly looking out for its own best interests. How refreshing in this age of post-nationalist ideologues and global plutocrats.

  • EvlBuzzard

    Germany looks like she will retain her wayward province afterall.

  • thibaud

    Russia defaulted, in effect, in 1998, its currency lost 75% of its value – and the country’s exports and its capital markets soared a year and a half year and continued soaring for eight years of robust growth.

    Argentina defaulted and devalued a few years later, and they too saw their economy bottom out and sharply rebound, with very strong growth throughout the decade.

    When Greece leaves the eurozone and de facto devalues its currency, sharp investors will be looking to buy.

    The Russians have seen this movie before. Even money that the biggest owner of Greek, also Spanish, assets five years from now will be the Russians.

  • Kris

    Rhodium@1: “the ‘tar baby’ analogy”


    John@14: Not to mention the ironies of Macedonia.

  • Thucydides

    While Russia looks to gain access and influence in Greece, much of Eastern Europe will be looking on in alarm. Most of the New European nations want to be dragged down by the EU zone meltdown, nor do they want to be sucked back into the orbit of Russia.

    I can see a third block forming of Eastern European nations, possibly led by Poland, who will start taking actions to coordinate their economic and foreign policy to create a firewall between the failed portion of the EU as well as Russia. Europe may be split between a Russian dominated Southern Europe (no longer part of the EU zone, but not as an attractive asset as the Russians had hoped for), a Rump EU of Northern Europe, dominated by Germany and a New Europe led by Poland and busily working to play off Russia and the EU zone to keep its independence and freedom of manoeuvre.

  • Robert Ellis

    F.y.i. my article on the Russian connection,
    Russia and the Cyprus gambit, appeared in New Europe the same day (

  • Danny K.

    Dr. Mead: Please remember this article the next time you are hurling accusations of antisemitism against Russia and Europe for supporting the Palestinians. Europe supports the Palestinian side, because the indigenous Christians of the Holy Lands largely identify with the Palestinians.

  • Danny K.

    I didn’t read far enough into the article without the obligatory mention of Israel. What’s with you conservatives and your fixation with Israel? As someone whose ancestry comes from that part of the world, I can guarantee you that the average Greek and Balkan person’s sympathies lie with the Palestinian people and not with the Israeli occupiers.

  • Dimitrios

    Reply to #10.Hanmeng: the connection between the word Tsar and Caesar is not silly, it is fact. The cultural and religious connotations of that connection are also true. The early Russian kingdoms (the principality of Kiev and later the Duchy of Muscovy) were very keen to associate themselves with the prestigious imperial inheritance of the Romans (Byzantines). Even though the religious ties were important, they also coveted the succession to Roman imperium, hence ‘Tsar. 3rd Rome’ etc.

  • Dimitrios

    Reply to #11 Rhodium Heart: I find your comments highly offensive. They also reek of ignorance. If you convert sovereign debt on a per capita basis, Greeks owe a lot less than their U.K. or German counterparts. I dread to compare it to what each American owes. That is by the by anyway. This crisis is not down to, as you put it, ‘Greek work-o-phobes’, rather. it is down to the penchant of the rich and mighty, and the political establishments that are in symbiosis with them, to exploit every opportunity, at the expense of the poor and weak, to make a buck. Add a hefty dose of corrupt and incompetent Greek politicians, and voila, you have your Euro-crisis. The Greeks as people are neither lazy nor corrupt. They are victims of the current system of global capitalism (which is fast collapsing), and they are suffering. Now, you might want to go and read up on how Greeks are responsible for igniting the renaissance in medieval europe, how Greeks were the only nation fighting the Axis powers alongside the Brits in 1940, go marvel at some of El Greco’s masterpieces, and thank Dr Papanikolaou (see Pap test) for helping countless women. One more thing: Modern Greece has had to fight for its existance many continuously, drawing on a pitiful resource base, yet surviving. We are survivors and fighters, and we will not go down without a fight. Remember that.

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