While the China-led Asian Infrastructure Investment Bank is hogging the headlines, there’s also news coming from Russia’s BRICS New Development Bank.
When Russian leader Vladimir Putin invited debt-laden Greece to join the BRICS bank, Jim O’Neill, the former Goldman Sachs chief economist who proposed the idea of BRICS, asked if it was some sort of an April Fool’s joke.
But Greece’s leftist Prime Minister Alexis Tsipras promised that he would “seriously consider” the invitation.
The suggestion doesn’t seem to make sense. Greece can hardly be considered a potential “emerging economy”. It is also unlikely to be able to shoulder the responsibility of being a member.
But this “joke” could actually imply a possible trend — debt-ridden Greece may have no other option but to get help from Russia.
After the debt crisis, Greece’s economy has contracted by about 25 percent, and it is being pressed by the European Union, the European Central Bank and the International Monetary Fund for debt repayment.
Earlier this month, Greece returned 650 million euros (US$730.2 million) to the IMF, but this is only a small part of the country’s external debt. This summer, Greece will need to repay 3 billion euros and nearly 7 billion euros to the IMF and the ECB respectively.
But where would the money come from? Tsipras’ Coalition of the Radical Left had won the election in January on the campaign promise of rejecting the creditors’ austerity prescription for the debt-laden economy.
If the EU is not going to forgive Greece’s debt or relieve its debt burden, Greece must think of a way to borrow money elsewhere. Now, other than China or Russia, who else can Greece look to for loans?
It is worthwhile to note that Greece is strategically important to Russia, but of little value to China.
Since the crisis in the Crimea, Russia has been targeted by the West, and because of the economic sanctions, the Russian ruble has been falling. Thus, Russia needs to find new allies in both the political and economic arenas.
Greece is an EU member and has a high degree of integration with major European economies. If Greece can survive the current debt crisis, it can be Russia’s window to the EU.
If Russia is going to re-establish a sphere of influence in the Balkans, Greece’s geopolitical location will also be very important.
It might be a risky move, but it could also be Russia’s counterattack after the Eastern European countries turned to the West collectively.
In the short run, it is unlikely that Greece will join the BRICS bank. Other BRIC countries are not going to agree. But Greece’s ties with Russia are very likely to deepen.
This April, the two have signed an agreement for Russia to build a new pipeline within five years that will allow its gas exports to Europe to pass through Greece.
It is like China’s One Belt, One Road scheme, which promises to transform the countries along the way through infrastructure; the difference is that Russia relies more on energy projects.
Earlier, the United States called on Greece to join the sanctions against Russia, but Athens said no.
Greek Defense Minister Panos Kammenos said the sanctions against Russia has already cost Greece 4.5 billion euros. In fact, he expressed the hope that Western countries would put an early end to the sanctions against Russia, which he describes as an ally.
The rapport between the two countries is clearly developing nicely.
The article first appeared in the Hong Kong Economic Journal on June 3.
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