Greece – Failure of Leadership with Global Consequences

Photo: EPA
Photo: EPA

“Le drame grec n’est pas et ne sera pas seulement national : il a et il aura des effets sur l’ensemble de l’Europe, dont la Grèce fait partie intégrante par son histoire et sa géographie” – Jacques Delors, Pascal Lamy et Antonio Vitorino in Le Monde of July 4th.

Greece and the European Union have their backs against the wall. Greece faces two deadlines, June 30th repayment of €1.6bn to the International Monetary Fund (which remains unpaid until the results of the referendum), and the July 20th of €3.5bn to the European Central Bank (ECB). Even if Greece were to repay the first bill, it would be unable to do so on July 20th.

So far, Greek Prime Minister Alexis Tsipras and his finance minister, Yanis Varoufakis, feel that the terms of the new bailouts are too destructive and would require more cuts on Greek social programs that they have asked Greek citizens to vote on their futures (the referendum is currently taking place in Greece). Without an extension of his first debt, Greece has no chance of receiving the remaining of the credit of €7.2 billion and would ultimately default. So, how has a crisis starting in October 2009 been so poorly managed and is putting at risk the stability of Europe and global markets?

A Call for Democracy?

On the night of Saturday  27th, Prime Minister Tsipras announced on television, at the great surprise of his European counterparts, that he would be holding a referendum on July 5th asking the Greek citizens to decide on the future of Greece, either by accepting the deal and the ensuing austerity measures, or by rejecting the deal and ultimately having to default. In order to hold the referendum, Tsipras asked his creditors to postpone the June 30th deadline by five days, which has been rejected. For instance, the leader of the Eurogroup of Eurozone finance ministers, Jeroen Dijsselbloem, said at a news conference that “The Greek government has broken off the process. However regrettable, the program will expire on Tuesday night.”

International public opinions have been deeply divided when reflecting on Tsipras’ call. On the one hand, some have argued that Tsipras is gambling with the future of Greece and ultimately the Eurozone and the stability of global market. While others have talked of a smart political move by Tsipras. On the question of the referendum, Prime Minister Tsipras has already expressed that he will be campaigning for a ‘no’ vote (read here Varoufakis’ recommendation for a no vote). Two of the top American economists, Joseph Stiglitz and Paul Krugman, announced in separate editorials that they would vote ‘No’ at the referendum. Joseph Stiglitz said clearly in his op-ed that the tension between Greece and its creditors (troika) is about power and democracy rather than economics. Yet, many media outlets have been very critical towards Tsipras as one can see the recent cartoon published by the Economist:

The Economist - July 4th
The Economist – July 4th

Merkel & Hollande, European Leaders? Think again…

The current crisis is more of a political failure than an economic/monetary one. It is the failure of Chancellor Angela Merkel of Germany and François Hollande of France to recognize that saving Greece is more important than letting a Eurozone member

Photo: EPA/WOLFGANG KUMM
Photo: EPA/WOLFGANG KUMM

defaulting on its payments and obligations. Chancellor Merkel has been portrayed as the leader of Europe, which seems to be a wrong assessment in retrospective. A leader is not an individual working on protecting solely the interest of his/her country, but in the interest of the system as whole. In addition, one needs to recognize that Merkel rejected a last minute call by Tsipras to redefine the terms of the agreement. She reiterated that there was no point in holding talks with Greece before the July 5th referendum. Her finance minister, Wolfgang Schäuble, was more critical, saying, “Greece is in a difficult situation, but purely because of the behaviour of the Greek government … Seeking the blame outside Greece might be helpful in Greece, but it has nothing to do with reality.” As hard it may be to justify another rescue of Greece to her electorate, Angela Merkel needs to recognize that a Greek default would endanger Germany, the Eurozone, the EU and global financial markets as a whole.

In the case of François Hollande, he has been too quiet and distant on the question of the Greek default. François Hollande, a socialist by political affiliation, missed a strategic moment in establishing himself as the axiom between the members of the South with the ones of the North. François Hollande’s gamble has been to bandwagon with Germany rather than positioning himself with a clear strategy and eventually offering alternative options in favor of Southern members. Hollande’s gamble is not only failing, but he has become irrelevant on the Greek dossier (not what French finance minister, Michel Sapin, would claim). Such strategic absence by France is regrettable, as the country economic base is so fragile that a Greek default would certainly put a halt to the more than timid recovery if one considers the degree of involvement of French banks in the Greek economy. It is difficult to imagine France striving through another Eurozone crisis with GDP growth rate of 0.6% and an unemployment level at 10.5%.

Global Earthquake, and American Powerlessness

A Greek default would have serious global consequences causing contagion throughout the world. Since Monday morning, global stock markets have been declining and are waiting on the eventual repercussions of a Greek default as many unpredictable consequences could occur considering the complex interconnection of world financial system.

The United States has been following the European drama very closely and powerlessly from the other side of the pond. Even though the US economy is slowly picking up, it has remained very timid with strong quarters and weaker ones. President Obama has been in directly contact (and through his Jack Lew, his Secretary of Treasury) with his European counterparts, Ms. Merkel and M. Hollande, expressing his concerns about the eventual consequences on the global finance and calling for a resolution. Speaking at a news conference, the Chairman of the Federal Reserve, Janet Yellen, said that “To the extent that there are impacts on the euro-area economy or on global financial markets, there would undoubtedly be spillovers to the United States that would affect our outlook as well.” The US have been very worried about the course of actions taken by the Europeans and has urged Greece and the Europeans to reach a deal in order to avoid a default.

A second reality, beside economics, is pure geopolitics and security. With a Greek default, the country would become unable to secure its borders, a real problem with the current migration crisis in the Mediterranean – wherein the EU and its Member States are failing to address – (read previous analyses here and here). Even if most of the coverage has focused on Italy, Greece is the second entry point to Europe by the sea and land. The second geopolitical reality is the rapprochement of Athens with Moscow. This rapprochement is taking place at a time

Reuters
Reuters

wherein the EU is extending its economic sanctions against Russia (so much for European unity vis-à-vis Russia). Greece and Russia are working on an deepening energy and agricultural ties. “Russia wants to build a pipeline through the Balkans, and Greece wants it, too” said Dimitris Vitsas, a ruling leftist Syriza party lawmaker, “We can develop a common enterprise not only in this, but for agricultural products and so on.” From Moscow’ standpoint, the gas deal with Athens is an important entrypoint into European politics. Moscow has been financing European radical parties and worked on transforming its image from within (read here a previous analysis on Russia in Europe).

Geopolitics highly matter in the Greek dossier and seem to have been sidelined for obvious economical and financial realities. With or without a Greek collapse, geopolitics will remain and affect the stability of Europe.

A New Meaning of Europe?

The European project is based on core principles, norms and values: solidarity, peace, democracy and respect. At several occasions, German Chancellor Angela Merkel used the phrase, “If the euro fails, Europe fails,” in order to talk about the need to save Greece. With the Greek fiasco, it seems that each normative dimension has been violated by all European parties. The concept of European solidarity is not embedded in punishing but assistance.

Greece is so indebted with a debt representing 183.2% of the GDP with an unemployment rate above 25% that its future can only be with a serious assistance by its European counterparts. Even if Greek debt is abysmal, Greece’s economy only represents 2% of the eurozone. In order to make Greece stable and functional, it will need to go through serious structural reforms and clean up the high level of corruption. Certainly some Eastern, Central and Baltic Member States, like Lithuania and Bulgaria, feel that Greece should implement the necessary reforms as the quality of life in Greece, especially the level of pensions in Greece, are much higher than in poorer EU Member States. But this could be adjusted once Greece is under European protection. Can these take place under additional austerity measures?

Last but not least, the European political narratives have evolved these last five years. Back in 2009, the concept of Grexit was not an option, just a concept describing an unthinkable future (read an interview on the topic here). Today, a Grexit appears as an option and eventually a reality. On the verge of a default, it seems that the EU project may be endangered because of lack of flexibility and lack of understanding of its heritage. Letting Greece default would be a failure of leadership and failure of strategic thinking.

(Copyright 2015 by Politipond. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed without permission).

 

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Mr. Renzi Goes to Washington

Photo by Olivier Douliery/UPI
Photo by Olivier Douliery/UPI

A year ago, President Obama and Matteo Renzi were meeting in Rome. On Friday, April 17, Matteo Renzi, Italian Prime Minister, was in Washington D.C. meeting President Obama in his first trip to the United States as the head of the Italian government. In the statement delivered by the White House’s Press Secretary on March 17 announcing the visit a series of issues were highlighted such as “support for Ukraine and continued U.S.-EU unity on pressuring Russian-backed separatists in eastern Ukraine to adhere to the Minsk agreements; the situation in Libya; and the need for the international community to continue efforts to counter ISIL and other extremists throughout the Middle East.” Even though the issues on the table are the same ones discussed last year in Rome, Matteo Renzi came to D.C. with a very different aura considering the results already obtained thanks to his policies.

Matteo Renzi – Changing Italy’s Future

Matteo Renzi came to D.C. at the right time considering the solidification of his power at home and in Europe. Renzi has worked on rebuilding domestic trust and in reestablishing Italy as a core and central country of the European Union. The years under Silvio Berlusconi contributed to the decline of Italy from what used to be an axiomatic EU Member State. So far it seems that Matteo Renzi is succeeding on both fronts. Domestically, he has established himself as the man of the situation by ending years of political instabilities. Politically, Forza Italia, right wing political party, has been kept under control after the disastrous years under Silvio Berlusconi. Economically and fiscally, yes the Italian overall debt remains massive representing 126% of the GDP. But on the bright side, the Organisation for Economic Cooperation and Development (OECD) project that the Italian economic outlook should be promising for 2015 with an expected growth of 0.6%. Even though the growth seems at homeopathic dosage, it would be the first time since mid-2011 that Italy would see some types of economic growth. Italy has been in recession for over three years now. All the cuts possible won’t be enough in order to lower the overall debt without growth; Italy must re-familiarized itself with economic growth.

At the European level, Italy is becoming relevant and an active member once again. The federicamogherinimatteorenzigovernmentyf0fx-kziyglmost obvious example was the appointment of Federica Mogherini at the helm of European foreign affairs. In less than a year, she has already demonstrated her commitment to her mission and has represented the EU where needed. Her short tenure at the EEAS has offered the EU and its Member States a new dynamism and presence on the regional and international platforms (read here a previous analysis on Mogherini’s 100 days). However, Matteo Renzi seems to be too close, for many Europeans and Americans, to Russia. The relationship between Italy and Russia is certainly long, but for many it seems that Renzi needs to be stronger in his opposition to Putin’s actions in Europe.

For both reasons, Mr. Renzi went to Washington with a certain aura and credibility. The economic engine is on and Italy matters once again in Europe.

Solving Libya and Ukraine

Ahead of this high level meeting at the White House, two issues are extremely important for the transatlantic community: Libya and Ukraine. From Rome, the crises in Libya and Ukraine are affecting directly the national security of Italy as well as the EU as a whole, while from Washington, President Obama would rather lead from behind with the help of core Atlantic partners, Italy for instance, than having to be directly involved on the ground. For one it is about security and survival, for the other it is about influence.

The crisis in Libya is serious for two reasons. Since the fall of the Qaddafi regime in 2011, led by an euro-atlantic coalition, the country has spiraled into a civil war. The civil war has created a power vacuum in the middle of North Africa offering the exit point for many Northern and Central Africans leaving their home countries because of political violence, war, dire economic conditions, terrorism with the hope to reach the European continent for a better life. The point of exit of Africa is Libya. Libya has become the transit country for most of illegal migration. In addition to unchecked migration, the civil war and lack of government have offered a new ground to the Islamic State of Iraq and Levant (ISIL). ISIL has emerged in the country directly threatening neighboring countries, which includes Europe.

In the case of Ukraine, President Obama wants to assure the guarantee of unity of Europe

PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES
PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES

in facing Russia. Crimea seems to belong to Russia and Ukraine should accept it, now the fights in Eastern Ukraine need to be solved. The Minsk agreement of February 2015 for a cease-fire was not enough, and the Euro-Atlantic community needs to be on the same page when addressing Russia. The economic sanctions implemented last summer by the EU are due to expire in late July 2015. So far there is no unity in the EU to extend them. A year ago, Italy was called on for trying to block the implementation of the economic sanctions against Russia. One reason is that Italy is the second largest trading partner with Russia after Germany. Russia has been strongly lobbying Italy in softening the sanctions against them. President Obama may want to avoid a situation wherein Italy limits the reach of the sanctions against Moscow.

In a matter of a year, Matteo Renzi seems to have delivered on many of his domestic promises and came with a certain aura to Washington. Matteo Renzi was hoping for some financial assistance in dealing with Libya (why not a NATO mission?) and in toughening his voice against Russia. Additionally, President Obama might have asked for some Italian support in order to try to finalize the massive T-TIP, which is lingering and creating strong discords in Europe. For what has been a very opaque meeting, due to the superficiality of Obama and Renzi’s comments (read here the joint press conference), Obama and Renzi wanted to solidify the ties and bring Italy back on the center stage.

(Copyright 2015 by Politipond. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed without permission).

SOTU – A US Foreign Policy à la carte

Photo by Bill O’Leary/The Washington Post via Getty Images
Photo by Bill O’Leary/The Washington Post via Getty Images

Prior the 2015 edition of the State of the Union (SOTU), the Republican party was presenting it as the ‘final act’ of the Obama presidency. But with the rapidity of the world events, the domestic debate and so forth, it could be, according to David Brooks, in fact the ‘beginning of the final act.’ As demonstrated throughout his address, he talked about the values at stakes rather than laying out a list of proposals – as in previous SOTU -.

President Obama opened his speech by drawing a dark picture about the turn of the new century caused by terrorism and the financial crisis. But he quickly underlined how the American economic engine is as good as once was in the 1990s with recent growth and a shrinking deficit, that unemployment levels are as low as prior the crisis, and America is energy independent. The tone of the speech was very celebratory in some ways as he directly challenged a divided Republican party. The 2015 SOTU was the moment of turn around, a legacy speech in some ways.

The bulk of his foreign policy section came around the end of his address and consisted in reaffirming America’s commitment to ‘smart power,’ meaning a combination of hard power with ‘strong diplomacy’ – for whatever it means -. According to Obama, the question is not about whether the US acts in the world, but how. In order to illustrate his foreign policy vision, he selected three themes:

  • first, the fight against terrorism. Obama underscored that the US won’t be going to war like it did in Afghanistan and Iraq (as a side note, President Obama highlighted the end of the combat mission in Afghanistan without getting into great details). But instead the US will lead coalitions on case by case basis. Nevertheless, Obama re-stated his call to Congress to authorize the use of force against ISIL. The Congress was very quiet on responding to his call. Aside from this comment, ISIL was not a large part of the speech and it does not appear that the US will be widening its military efforts in the Middle East. Europeans may have to jump in (read here an analysis on the question).
  • second, President Obama took the example of Ukraine, Cuba, and Iran in order to demonstrate American leadership in leading the world. In the case of Ukraine, he claimed that the US is “upholding the principle that bigger nations can’t bully the small.” However, the example of the US standing against Russia in protecting Ukraine seems ill-advised. Russia is still very active in Eastern Ukraine and the war is still going on. The sanctions adopted by the EU and the US may need more meat in order to change radically Russian foreign policy. Certainly Russian economy is showing serious signs of weaknesses, but will it change the way Putin frames Russian national interests and the direction in Russia’s foreign policy? So the link between Western sanctions affecting the Russian economy does not imply that Putin will change his foreign policy anytime soon.
  • third, President Obama addressed several topics affecting American national security such as cyber-security and cyber-threats; public health with the example of Ebola; and climate change. Among this laundry list of topics, President Obama addressed the question of climate change in greater depth. Obama re-called that 2014 was the warmest year on the planet and rejected the arguments raised by climate change deniers in Congress. Even the Pentagon, in an earlier report, wrote that climate change poses a direct threat to national security. The Pentagon wrote that “In our defense strategy, we refer to climate change as a ‘threat multiplier’ because it has the potential to exacerbate many of the challenges we are dealing with today – from infectious disease to terrorism. We are already beginning to see some of these impacts.” However, he did not include a statement calling the Legislature to prepare and think about American strategy prior the December Paris Summit on Climate Change.

Ultimately, the speech was stronger on domestic policies than on foreign policies. Once again, there is a lack of overarching foreign policy strategy aside from the perpetual mention of smart power. The problem is that smart power, like hard and/or soft power, is an instrument of foreign policy not a strategy. One cannot base a foreign policy on ‘smart power’ (even Hillary Clinton underscored such discrepancy). The foreign policy section appeared more like a list of issues and crises without a clear strategic thinking. Such weakness provides a confirmation to the beliefs and perceptions by a majority of Americans that Obama is ‘not tough enough’ on foreign policy. As illustrated in the chart below, his numbers have declined. In a matter of six years, more than 50% of Americans feels that Obama is not tough enough. A lack of direction in Obama’s foreign policy may have contributed to the belief that Obama has not been tough enough in office.

Source: Pew Research. 2014.
Source: Pew Research. 2014.

Since taking office, President Obama was dealing a tough domestic, economic and fiscal situation. But the world has not stopped spinning and the US has been over the last six years in search of a clear strategy going from the pivot to Asia, to retrenchment, to leading to behind, now to strong diplomacy. The feeling from the 2015 edition of the SOTU is that the Obama administration will be dealing with foreign policy on case by case basis. Forget about getting a menu, it will be à la carte from now on.

 (Copyright 2015 by Politipond. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed without permission).