What Russia Offered Greece
Russia’s offer of a pipeline came with an offer of a $5 billion prepayment. This was intended to buy Greece time to apply for a loan from the BRICS Bank. However the Greeks don’t seem to be embracing the offer.
In the article about how Greek Prime Minister Alexis Tsipras’s dealings with Moscow
are putting at risk Greece’s traditionally friendly ties to Russia, I
said that the gas pipeline proposal the Russians have floated is
intended to help Greece, not achieve some grand Russian pipeline
strategy. In this article I will explain why.
By any measure Russia showed immense good will
It is first necessary to say something about Russia’s gas export policies.
Western paranoia about Moscow’s supposed
“pipeline politics” has distorted understanding of Russian gas policy to
a quite extraordinary degree, even among commentators who are generally
favourable to Russia.
There is no evidence Moscow thinks of its
gas exports in terms of “pipeline politics”. Moscow hardly ever
entertains the grand geopolitical strategies Westerners routinely
attribute to it and this is a case in point. There is no evidence Moscow
thinks of gas exports in geopolitical terms or sees them as offering
Moscow a political advantage, and Moscow has always denied it.
If Moscow ever entertained such
farfetched notions then the experience of Ukraine and of the collapse in
Moscow’s relations with the EU will have disabused it.
The Russians see gas export as simply
business. They have never cut off gas to countries because they are in
political conflict with them.
They continued to supply Georgia with gas
throughout the 2008 South Ossetia war. They supply gas to the Baltic
States and have never threatened to turn it off despite the many
political conflicts Russia has with those statea. On the occasions when
the Russians have cut off gas to Ukraine (in 2006, 2009 and 2014) it was
not because of political conflicts but because Ukraine didn’t pay.
Since Ukraine is now paying — if only in dribs and drabs — the Russians
are now supplying it with gas, much to the surprise (and annoyance) of
some people.
If notions of Russia using gas exports as
a political tool are put aside, then the falsity of much of the debate
around this issue becomes obvious.
There is no evidence that the Russians
have ever attempted to prevent Europe from diversifying its gas imports.
They have never obstructed European projects to import gas from the
Caspian or Algeria or Qatar or the US. If none of these projects has
succeeded up to now it is not because the Russians have acted to prevent
them. It is because they do not provide the needed gas.
It is therefore a mistake to think of the
various Russian pipeline projects like North Stream and South Stream
and Turk Stream as pursuing some sort of geopolitical agenda, intended
to “lock in” Europe into buying Russian gas, the better to control or
influence Europe’s policies. The Russians are practical enough to know
that is impossible.
The reason for these pipeline projects is
because the Russians have learned that Ukraine — the key transit state
most of the existing pipelines cross — cannot be trusted. In 2006 and
2009 the Ukrainians stole Russian gas intended for other customers. In
2014 Ukraine threatened to do the same thing again.
Understandably enough the Russians have
decided to end Ukraine’s role as a transit state. The pipeline projects
Russia has been pursuing are intended to circumvent it and have no other
purpose. Though they are expensive they are necessary to guarantee that
Russian gas reaches its intended customers. They therefore — contrary
to what some say — make obvious commercial sense.
The North Stream project to Germany and northern Europe has been built and is now being extended.
The South Stream project was cancelled because the EU insisted that it be made subject to the EU’s Third Energy Package.
I have previously explained in detail why
that was completely unacceptable to the Russians and why that led them
to cancel the whole project (see “The Real Reason Russia Cancelled South Stream”, Russia Insider, 4th December 2014).
In place of South Stream the Russians
announced plans to build a pipeline to Turkey. That project — now called
“Turk Stream” — is going ahead.
The Russian decision to build Turk Stream
in place of South Stream was made because Turkey is a major customer of
Russian gas which is not a member of the EU and which does not
therefore require compliance with the EU’s Third Energy Package.
Turk Stream’s ultimate destination is a
giant gas hub Turkey is building near Edirne in European Turkey. This
hub is expected to receive gas both from Turk Stream and from a separate
non-Russian pipeline from the Caspian, known as the
Trans-Anatolian pipeline.
At the time that Turk Stream was announced the Russians had no plans to extend Turk Stream beyond this hub.
Since the EU insists that any pipeline on
EU territory must comply with the Third Energy Package, the Russians
said they would not build any more pipelines on EU territory. As
Turkey’s European neighbours, Bulgaria and Greece, are members of the
EU, that meant that the Russians were ruling out building any pipelines
across their territories.
What the Russians said was that if the
Europeans wanted to tap into the gas that would be stored at the hub
then they would have to build the pipeline themselves.
That was the Russian position until Syriza was elected.
In March 2015 Tsipras went to Moscow and the question of how to help him then came up.
It is a fallacy that Putin can simply
click his fingers and give Greece money. Any money Russia gives Greece
must come from some source. These are (1) the Russian state budget (2)
the National Welfare Fund or (3) as commercial payment for a project.
Russia’s budget has been approved by the
Russian parliament and makes no provision of money for Greece. For that
to change the budget would have to be amended, which would require the
approval of the Russian parliament. That would be controversial at a
time when the budget is in deficit.
Providing money from the National Welfare
Fund is equally problematic. The National Welfare Fund is only supposed
to invest funds in AAA credit rated securities. Greece, which is
bankrupt, doesn’t have such a rating.
In December 2013 the Russians overrode
this provision to make a loan of $3 billion to Ukraine out of the
National Welfare Fund. Ukraine at that time did not have a AAA credit
rating. The Russians have regretted the decision ever since. It is
inconceivable that the Russians would be prepared to do the same
thing again.
That leaves commercial payment for a project as the one remaining option, and that is what the Russians proposed.
Though it reverses what the Russians
decided when they cancelled South Stream last autumn, what they proposed
to Tsipras in March and April was the building of a pipeline across
Greece taking gas from the hub. This would have come with a $5 billion
prepayment paid out of Gazprom’s financial reserves. Greece could have
used that payment to pay this month’s installments to the IMF.
That solution would obviously not have
sufficed to help Greece overcome its problems. However it would have
provided Greece with a breathing space. It seems that the Russians
proposed that Greece use this breathing space to join the BRICS Bank. It
could then have negotiated with the BRICS Bank for a loan.
Behind the BRICS Bank stands China with
its practically unlimited reserves. A loan from the BRICS Bank — with
the knowledge that China, however discreetly, was now involved — would
have changed the dynamic of the situation and might by itself have
stopped the bank run that has been underway in one form or another in
Greece since December.
It goes without saying that the proposal
that Greece join the BRICS Bank — which the Russians have made publicly —
could only have been made with China’s agreement.
That in essence appears to have been the offer the Russians made to the Greeks.
It is far from certain it would have succeeded. There would have been risks in it for both sides.
The Russians would have gambled that
Greece, unlike Bulgaria, would defy the EU and would press ahead with
the pipeline project despite it not being compliant with the Third
Energy Package. If this gamble failed and the Greeks, like the
Bulgarians, reversed themselves then the Russians would have given
Greece $5 billion with nothing to show for it.
It says much for the goodwill the
Russians have for Greece that they were prepared to take this risk,
which meant reversing the decision they took last autumn to abandon
pipeline construction on EU territory.
The Greeks for their part would have
gambled that knowledge that Russia and China were involved would force
the IMF and EU to restructure Greece’s debt. Without such a
restructuring a default is at some point inevitable since the debt at
180% of GDP is obviously unsustainable.
The IMF and EU might have agreed to such a
restructuring rather than permit a default that would have pushed
Greece further into Russia’s and China’s embrace. However there is no
guarantee of this. It is equally possible that the IMF and EU would have
been so incensed by Greece’s turn to Russia and China that they would
have continued to refuse a restructuring. In that case there would at
some point be a default while Greece in the meantime would have burned
its bridges with the EU.
Though accepting the Russian offer would
have been a gamble, it is not obvious as I write this that accepting it
would have left Greece in a worse position than the one it is in anyway.
Reports today suggest that the IMF and EU are continuing to take a very
hard line and are refusing a restructuring even though the Russian
offer has been essentially rejected.
The problem is that while one part of the
Greek government based around the energy ministry seems to have
embraced the Russian offer, the other part, based around the finance and
foreign ministries, seems determined to reject it. Tsipras seems unable
to make his mind up between the two.
The Russian offer is probably still on
the table if it is embraced wholeheartedly. As of now that does not seem
likely. At the moment it looks like the Greeks will only likely embrace
it in the event of a Grexit. Whether at that point the offer will still
be there remains to be seen