Grexit affects strategic plans of China, Russia

Want China Times, Wu Pei-shan 2015-07-18

Greek Prime Minister Alexis Tsipras casts his referendum vote on the
bailout measures, July 5. (Photo/Xinuua)

Greek voters rejected the bailout measures proposed by European leaders in a referendum on July 5, triggering a Grexit crisis as it appeared Greece might withdraw from the eurozone.

But after marathon negotiations on July 12 and 13, European leaders reached an initial consensus on a debt plan that makes it possible for Greece to remain in the currency zone.

Back in 2001, Greece saw its credit rating upgraded after it joined the eurozone, and the Greek government was able to issue government bonds at low interest rates, making it easy to raise debt.

When a global financial crisis hit the world, the three major credit rating agencies in the United States gave Greece's bonds junk-grade ratings.

Faced with surging debts after years of credit expansion, Greece has relied on the European Central Bank to raise the ceiling on emergency financing to make do while failing to address its internal financial woes and has therefore often been late in repaying the debts.

Greece could become the first developed country to default on its debt payments, and it still could eventually be forced to withdraw from the eurozone.

Though facing economic woes, Greece remains strategically important. It is located at the crossroads of Europe, Asia and Africa, and its largest port of Piraeus has been described as Europe's southern gateway and the starting point of a European sea lane proposed under China's Maritime Silk Road initiative.

Chinese enterprises have obtained operating rights to Piraeus, making it convenient to transport cargo into Europe, and the port could even overtake Rotterdam and Hamburg as Europe's largest land transportation port.

Under China's "Maritime Silk Road" initiative, Greece could serve as the gateway for China's exports to the Mediterranean and northern African countries.

For Russia, after economic sanctions restricting its oil and natural gas exports were imposed on Moscow in September 2014 for its annexation of the Crimean penninsula in the Ukraine as well as allegations that it is funding and sending troops to support insurgents in eastern parts of the Ukraine, it has had to seek other outlets.

In the past, Europe was the biggest export destination of Russian natural gas with Eastern Europe relying on Moscow for over 50% of its natural gas needs. After the economic sanctions though, Norway has replaced Russia as Western Europe's biggest supplier of natural gas.

Russia began to cooperate with Turkey late last year on a natural gas pipeline that will carry natural gas to Southern Europe via Turkey and Greece.

This ability to supply natural gas to Europe through Greece will give Russia a bigger say in setting energy prices, and Greece will gain a strategic position in the energy business in addition to an important political status.

The many twists and turns in the Grexit crisis have clearly affected the international strategies of China and Russia, something that the West did not foresee.

(Wu Pei-shan is a researcher at the World Economics Society. Translated by Want China Times.)

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