Passport

Greek Leader Cozies Up to Putin Amid Possible Bank Run

Greece cozies up to Russia, and the European Central Bank tries to stem a run on Greek banks.

GettyImages-477704248

The financial crisis in Greece is going from bad to worse.

As desperate Greek citizens withdrew one billion euros, or $1.1 billion, from banks Friday, the European Central Bank announced during an emergency meeting that it would increase the amount of money banks there can borrow. It’s a blatant attempt to stop a run on Greek banks ahead of a July 1 deadline to pay the IMF $1.8 billion it owes as part of a $270 billion bailout package.

It’s also a sign of declining confidence in the ability of Greek Prime Minister Alexis Tsipras and European Union leaders to reach a deal for Greece to pay what it owes. Tsipras insists Greece has the money to pay its debt, but won’t do so until Europe agrees to lessens austerity demands, including reforms to the bloated Greek pension system.

The unspecified amount of money loaned to Greece by the ECB is meant to hold banks over until Monday night, when European leaders hold an emergency meeting to address the Greek crisis. Talks between European finance ministers and Tsipras on Thursday went nowhere, raising the possibility Greece could leave the eurozone.

As the ECB extended yet another financial lifeline to Greece, Tsipras was in Moscow, where he met with Russian President Vladimir Putin. Speaking at the St. Petersburg Economic Forum, the prime minister blasted his European monetary partners for their austerity demands.

“The EU should pursue its own path. The EU should go back to its initial principles of solidarity and social justice. Ensuring strict economic measures will lead us nowhere,” Tsipras said.

“The so-called problem of Greece is the problem of the whole European Union,” he added.

The comments came amid speculation that Russia could come to Greece’s rescue, potentially pulling an American ally and EU member state more firmly into Moscow’s orbit. Russian Deputy Prime Minister Arkady Dvorkovich said his country was considering giving Tsipras the money to pay back the IMF. Russian officials also announced Greece had signed an agreement for Gazprom, Russia’s state-owned energy giant, to build a pipeline in the Mediterranean nation.

“The most important things for us are investment projects and trade with Greece,” Dvorkovich said. “If financial support is required, we will consider this question.”

For now, though, Europe’s primary concern is to stem the Greek bank run and the ensuing chaos it would cause. The last time Europe experienced a run on banks was in 2007 after the collapse of Lehman Brothers. In England, customers queued up outside branches of Northern Rock after it had to ask the Bank of England for a loan to cover its losses.

However, the ECB loan might not be enough to stop Greeks from panicking.

“The ECB is in a very tricky position: Its ability to prevent a bank run is limited as this depends heavily on political negotiations between Greece and other Euro member states,” Mujtaba Rahman, head of the Eurasia Group’s European practice, told FP.

Rahman added that in order to stop a run, the Greek government would have to agree to capital controls to keep money in the country. But as Tsipras has repeatedly proven, he’s in no mood to cooperate with the rest of Europe.

Photo credit: Olga Maltseva/Getty Images

Trending Now Sponsored Links by Taboola

By Taboola

More from Foreign Policy

By Taboola