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Luxembourg warns Germany a Grexit would be catastrophic
Luxembourg warned Germany on Sunday of a "catastrophe for Europe" if it pushed for Greece to leave the euro zone as the idea of a temporary exit gained traction with some of Chancellor Angela Merkel's conservatives.
Luxembourg Foreign Minister Jean Asselborn's comments came after Germany argued that Greece could take a five-year "time-out" from the euro zone and have some of its debts written off if Athens fails to improve proposals it has made for a bailout.
"It would be fatal for Germany's reputation in the EU and the world if Berlin does not now seize the chance that there now is with the Greek reform offers," Asselborn told Germany's Sueddeutsche Zeitung newspaper.
"If Germany pushes for a Grexit, it will provoke a profound conflict with France. That would be a catastrophe for Europe," he added in an advance release of an interview to run in the Sueddeutsche's Monday edition.
In a paper reviewing an offer of reforms from the Greek government in return for a three-year loan, German Finance Ministry officials wrote: "We need a better sustainable solution."
The paper, seen by Reuters and first reported by Germany's Frankfurter Allgemeine Sonntagszeitung, offered "two avenues": either tighter conditions binding the Greek government to its new promises or a temporary exit from the euro.
The temporary exit idea resonated with Hans-Peter Friedrich, deputy parliamentary floor leader for Merkel's conservatives and a member of her Bavarian allies, the Christian Social Union (CSU).
"What is necessary is to restructure and strengthen the Greek economy in its own currency," Friedrich told German daily Die Welt.
Friedrich's comments highlight Merkel's dilemma.
The chancellor is trapped between fierce domestic opposition to going soft on Athens, and intense international pressure to grant Greece debt restructuring if it delivers convincing reforms in a deal to keep the country in the euro zone.
Merkel is due to take part in a euro zone summit on Sunday.
"Germany's responsibility is enormous," Asselborn said. "Now this is about not evoking the ghosts of the past."
German private sector economists told Reuters a temporary euro exit for Greece would be a bad idea.
Deutsche Bank's Nicolas Heinen said that under such a scenario euro cash circulating in Greece would still dominate in a dual currency system.
"A chaotic cash economy like in Cuba or Lebanon would further weaken the attractiveness of Greece," Heinen added.
Berenberg bank economist Holger Schmieding said a temporary euro zone exit for Greece would effectively be a 'Grexit' as Athens would have to qualify again to rejoin the currency union and likely face an extremely stern examination in doing so.
"In practice, it is really Grexit -- with the chance in five years to apply for admission again," Schmieding said of the Finance Ministry's temporary exit idea.
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Tsipras Given 72 Hours to Win EU’s Trust by Passing Bailout Laws
Prime Minister Alexis Tsipras was given three days to push new austerity measures through parliament and keep alive Greece’s chances of staying in the euro.
Finance ministers meeting in Brussels before a Sunday summit of euro-area leaders demanded Greece enact economic reforms before opening detailed negotiations on an aid package of at least 74 billion euros ($83 billion). If Tsipras misses that deadline, Greece faces being suspended from the currency union, Finnish Finance Minister Alexander Stubb said.
“Greece is being given exactly two choices,” Stubb said. “It’s a rather black and white choice.”
Riled by six months of personal attacks and contradictory messages from Athens, euro-area policy makers are forcing Tsipras to overcome the credibility gap they said was a key hurdle to more loans. They’re no longer willing to take him at his word.
“The situation is extremely difficult if you consider the economic situation in Greece and the worsening in the last few months, but what has been lost also in terms of trust and reliability,” German Chancellor Angela Merkel told reporters.
With Greek banks rationing cash and the European Central Bank reviewing how long it can keep the country’s financial system alive, Tsipras won a stay of execution as he arrived at the summit when a Sunday meeting of the 28 European Union leaders was canceled. The full group of leaders would only have gathered to discuss how to handle Greece’s exit from the euro, Maltese Prime Minister Joseph Muscat said.
Creditors are using the calendar as leverage on Greece, which owes the ECB about 3.5 billion euros ($3.9 billion) on July 20 and missed a payment of about $1.7 billion to the International Monetary Fund June 30. Tsipras’s predecessors were given months to enact economic reforms after tapping the first bailout loans in 2010.
“I’d like to see them demonstrating starting tomorrow in their parliament they’re serious about implementing the changes, legislative and structural, that need to be put in place,” Irish Prime Minister Enda Kenny said. “And there are many of them.”
Comments in Greece suggested the pressure was having its intended effect.
An unsigned commentary in the Sunday edition of Avgi newspaper, seen as a Syriza party mouthpiece, said Tsipras must seal a deal, then address political fallout that is “driving the country to elections in a short time.”
“The country has only the road of realism,” Kostis Hatzidakis, an opposition New Democracy lawmaker and former minister, said on Skai TV on Sunday. “The time for criticisms will come, but we have to escape the eye of the storm first.”
Greece has already caved to creditors’ demands, with lawmakers passing increases in sales taxes and cuts in pensions in the early hours of Saturday. The vote marked an abrupt turnaround for the Greek leader, who’d won an anti-austerity referendum a week earlier accusing the rest of the euro area of trying to blackmail his country.
“I am ready for an honest compromise,” Tsipras told reporters as he arrived. “We owe it to the people of Europe that want a united, not divided, Europe. We can reach an agreement tonight if the parties involved want it.”
Some ministers on Sunday wanted Greece to place about 50 billion euros of state assets into an independent company that could serve as collateral against aid loans, Luxembourg’s finance chief Pierre Gramegna told reporters.
“It would remain in Greek hands, but it would create more assurances,” Gramegna said. “There is great hesitation from the Greek side and now the heads of state and government have to choose.”
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Why NATO Fears 'Grexit'
With Greece tottering on the brink of leaving the Eurozone, experts of all stripes have been debating Grexit's security implications, including Athens' relationship with NATO. While naysayers argue that the geopolitics behind Grexit "are actually pretty boring," others warn that the implications for the bloc could be far more serious.
Over the past couple of weeks, US and European media have been busy pondering the implications of the Grexit for European security, particularly as it relates to the NATO alliance.
Following an initial outburst of panic and alarm about NATO standing to lose its Mediterranean outpost to Moscow before being flooded by immigrants, NATO Secretary General Jeans Stoltenberg urged for calm, noting that the Greeks "have not linked the problems within the European Union and the euro with their strong commitment to NATO," and adding that Athens will remain "a close partner."
Influential US news and geopolitical analysis publication Foreign Policy echoed Stoltenberg's tone, brushing off security fears with a recent headline reading "The Geopolitics of a Grexit Are Actually Pretty Boring."
The piece, written by former European Council on Foreign Relations Senior Policy Fellow Dimitar Bechev, argues that "those fretting that a Greek departure from the Eurozone will unleash a flood of migrants and send Athens into the arms of a waiting Putin should calm down," noting that "none of this is going to happen."
Bechev states out that the "alarmist" arguments over Greece have turned the country, a "peripheral member of the West that accounts for a mere 3 percent of the eurozone's GDP, into a pivotal country."
Moreover, dismissing arguments about the country's 'dangerous' "flirtation with Russia," Bechev posits that in actuality, the "Russian gambit," aimed at providing the Syriza-led coalition with "some space to maneuver" in relation to Brussels and Berlin, has "failed to pay off."
As far as Greece's geopolitical importance is concerned, Bechev notes that geopolitical considerations have not really given the country "much mileage in the debt talks," adding that "even if Athens wanted to foment trouble –and there are few signs that it does –it has little power to actually do so."
Ultimately, according to the analyst, Greece is and will remain unlikely to rock the boat on any of Europe's major security and foreign affairs issues, from anti-Russian sanctions, to the US-EU trade pact, to immigration controls.
Trojan Horse, or Weakest Link?
But Bechev's calm and level-headed analysis is contradicted by other experts, no less dispassionate and rational than he is, including fellow FP contributor and former NATO commander James Stavridis, who noted in a piece preceding Bechev's that even if the "angry, disaffected and battered nation" remains a NATO member, it could nonetheless become an obstructive one.
This, in Stavridis's view, would be a very serious problem for what is ostensibly a consensus-driven organization.
According to the former Navy commander, this obstructionism could come to a head when it comes time for the organization to make decisions against perceived threats, including Russia. It could also lead to thorny issues over the use of Greek bases in the Mediterranean, or Athens' participation in NATO military missions.
Politico Europe echoes Stavridis's analysis, noting in a recent article that with NATO "rely[ing] on unanimous approval from all 28 members for all major decisions, Greece, especially one shored up with economic reprieve from Russia, could prove to be a major headache for future Alliance maneuvers" to counter Moscow.
Furthermore, the publication notes that "NATO's unanimity clause applies not only to deploying military forces, but also to essential day-to-day functions of the Alliance such as arms sales and major political decisions such as invoking Article 4 or 5 of the Washington Treaty to consult and defend fellow allies."
Challenging Bechev's argument that Greece could not put a crimp in NATO's plans 'even if it wanted to', numerous analysts have cited Athens' history of obstructing NATO decisions when necessary, from the country's outright withdrawal from the organization's military command structure in the 1970s, following Turkey's invasion of Cyprus, to its condemnation of NATO's 1999 bombing campaign of Yugoslavia, to recent efforts to block NATO-EU cooperation over the Turkey-Cyprus dispute.
Moreover, even if Stoltenberg is correct, and an Athens left to its economic fate continues to be NATO's "close partner," its impoverished status would likely leave it NATO's weakest link.
As recently noted by The Guardian's John Hooper, while Greece is presently one of the few NATO members which abides by the requirement to spend at least 2 percent of its GDP on defense, the country's economic collapse would not only cripple the country's participation in NATO missions; it would also signal the weakening of the organization's south-eastern flank, while sparking fears of a Russia looking to take military advantage of the situation.
Economic Ripple Effects
Even if the naysayers are correct, and Moscow shows that it does not have the political will or the financial wherewithal to attempt to pry Greece from NATO's warm embrace, analysts note that the Greek crisis has had, and is likely to continue to have, a knock-on economic effect on European economies.
In a recent op-ed for Indian Express, University of Cambridge lecturer and Greek Public Policy Forum member Nikitas Konstantinidis argued that "the chain set off by Grexit" could be "even more painful than events following the Lehman Brothers bankruptcy" in 2008.
As a result, Politico Europe notes that if the recession-treading members of the EU were to face further economic shocks resulting from Grexit, this will not "augur well for NATO militaries," shifting "NATO members' focus further away from defense spending."
Security Issues Surrounding the Migrant Crisis
With Greece turning into one of the main points of entry for tens of thousands of African and Middle Eastern refugees fleeing war and instability across the Mediterranean, analysts warn that Grexit is likely to have a negative impact on this pressing issue as well.
And While Bechev's argument that Greece is unlikely to "use migration controls as a weapon in a guerilla war against Europe" stands to reason, this does not mean that economic collapse and the ensuing political and social fallout will have a positive impact on the country's ability to control the flood of immigrants.
As Politico Europe points out, the worsened economic situation following Grexit will severely "undercut badly needed funding for Greece's ability to track refugees and retain border security" which in turn "poses a very real danger to NATO members' security, especially as reports begin to filter in of Islamic State fighters slipping into Europe in the wave of refugees.
Ultimately, while some analysts now attempt to downplay Greece's importance in the political, economic and security geography of Europe, others, including Konstantinidis, maintain that the country remains "a core member of some of the world's largest regional blocs."
Therefore, "the ramifications of a potential Grexit" are likely to be highly "disproportionate to the country's economic size and geopolitical clout."
As far as transatlantic security is concerned, the danger posed by the Grexit is not confined to the questions it raises over Greece's NATO membership, or the security ripple effects caused by the Greek economy's collapse. Grexit's danger lies in the fact that it serves as a symbol of the reversal of transatlantic institutions' fortunes in their attempts to build and maintain a hegemonic political, economic and military order in Europe.
Greece Must Hold First Reforms by July 15 on Economic Crisis
Finnish Finance Minister Alexander Stubb mentioned three main points of possible agreement on the Greek economic crisis.
The Greek Parliament has by July 15 to conduct its first reforms as one of the key conditions to reach an agreement on the Greek economic crisis, Finnish Finance Minister Alexander Stubb said Sunday.
“It is a document that has far reaching conditionality on three accounts – number one, laws that have to be pushed through by the 15 of July, number two – conditions and prior actions that have to take place, and then number three – 4 bullet points that are quite far reaching on privatization and others, and the bottom line is if there is to be an opening of ESM negotiations all of these conditions have to be met and approved by both the Greek government and the parliament,” Stubb said after a Eurogroup meeting in Brussels.
Greece, with its overall debt estimated at some $350 billion, is struggling to repay the $270 billion it owes to its major international creditors, including the International Monetary Fund (IMF), the European Central Bank and eurozone countries.
On Thursday, Athens proposed to its lenders a plan of economic reforms that the country is ready to implement for more loans.
On Saturday, the Greek Parliament voted to back the new reform proposals.
Earlier on Sunday, Stubb characterized Athens’ proposals to the eurozone as insufficient and unclear.