Report

With an Assist From Putin, Greece — for Now — Wins

The prospect of Russian President Vladimir Putin rescuing Greece might be enough to get Europe to cave to Athen's debt demands.

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For months, Greece and the European Union have squared off over austerity in Athens. The Europeans, led by Germany, demanded Greek Prime Minister Alexis Tsipras reform his country’s bloated pension system. Tsipras refused and held a $1.8 billion debt repayment to the International Monetary Fund as a hostage to get his way.

On Monday, with both a looming June 30 deadline to pay back the IMF and Russian President Vladimir Putin, Europe blinked.

Greek Finance Minister Giorgios Stathakis submitted a reform plan Monday that included new taxes on Greece’s businesses and wealthy citizens, but does not change the Greek retirement system. Now, as European leaders hold an emergency meeting to discuss the standoff, a deal for Greece to pay part of what it owes — the total bailout to the cash-strapped nation is $270 billion — is expected within the week.

According to Mujtaba Rahman, head of the Eurasia Group’s European practice, the Greek prime minister’s flirtation with Putin was enough to break Europe’s collective will. As Tsipras met with Putin last week in St. Petersburg, Russian officials said they would consider giving Greece emergency aid. Greek and Russian officials also announced a natural gas deal last week, and in the past, Putin has promised to invest in infrastructure there.

This developing relationship is something German Chancellor Angela Merkel has good reason to fear. She needs European and NATO unity to continue sanctioning Russia for its actions in Ukraine. In the past, Tsipras has accused Europe and the United States of trying to start a new cold war.

However, the basis for Russian-Greek cooperation — the Turkish Stream pipeline — may end up being a pipe dream. Construction on the gas line has yet to begin, and a previous pipeline, called South Stream, was canceled in 2014 because it ran afoul of European regulations.

“I would be very skeptical that this plan is going to work,” Vessela Tcherneva, an energy expert and director of the Wider Europe program at the European Council on Foreign Relations, told Foreign Policy on Friday.

“I would put it in the category of Greece needing to show it has alternatives, and Russia wanting to demonstrate its ability to divide the EU.”

Monday’s events mark a stunning turnaround from last week, when the European Central Bank had to lend Greek banks money to stop a run on banks there. Then, it appeared as if Europe was content to let the Greeks default, an event that could lead to to so-called Grexit: Greece getting kicked out of the European monetary club.

Now, Greece will likely live to see another day in the eurozone. And Tsipras’s strategy to keep Europe’s hands out of Greek retirement funds worked.

While Greece is likely to remain in the monetary union, the crisis is far from over. Rahman predicted that a deal between Greece and Europe would keep the IMF from panicking, if Athens can’t turn over the cash it owes by the end of the month. But, at some point, Greece will have to pay its debt. It also has to crack down on Greek taxpayers, who are notorious for dodging government levies.

But for now, it appears as if Tsipras got what he wanted: a political deal with Europe that keeps Brussels out of Greek retirement funds.

“They’ve absolutely won. This is a massive victory,” Rahman told FP Monday.

Keith Johnson contributed to this report.

Photo credit: Olga Maltseva/Getty Images

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