Greece: A Nation Divided -- Will Russia Take the Initiative?

06/29/2015 02:04 pm ET | Updated Jun 29, 2016

The Greek referendum set for July 5, 2015, is about "yes or no to Europe."

The nation is divided. One camp for the Euro, for membership of the European Union (EU), and ultimately for Europa; the other one against the Euro, against EU membership and ultimately against Europe. Families, friendships, organizations and businesses will split right through the middle. The two camps will hate each other for a generation.

A prosperous, well-functioning Greek society playing a role in Europe, in the southeastern part of Europe, well-anchored in an alliance with Western countries, looks remote. More likely Greece will serve as a European edition of a semi-failed state. It is urgent to get the country going again -- whether it is yes or no -- but extremely difficult in such a climate and the long term confidence among overseas investors will dwindle from an already low level.

Opinion polls have consistently shown a majority for the Euro nudging the government to strike a deal with the creditors. If these polls are correct and the response holds, a majority will vote for Europe.

The opposition will hammer the point of "yes or no to Europe" during the campaign -- admittedly a short one, but short campaigns favors simple questions.

The government and Prime Minister Tsipras will propagate that Greece was confronted with an ultimatum on unacceptable terms -- a humiliation of the nation. The snag is that he was elected on the 25th of January 2015 campaigning for Greece to stay in the Euro, but on better terms than the previous government, saying he could deliver. It is now apparent that this was not the case. Over five months of arduous and strenuous negotiations he has repeatedly conveyed the message to the public that he negotiated to keep Greece in the Euro and that a deal was close. It wasn't. Now he puts the full blame on the creditors; maybe he will succeed, but it is not likely. People's memory is not that short.

At the January 25, 2015, election, with a turnout of 63.9 percent, political parties either totally against the Euro or asking for a better deal got a small majority of votes. The largest party, Syriza, gained 9.5 percentage points, equal to about 500,000 votes. Its coalition partner, Independent Greeks, who only share opposition to austerity with Syriza, lost about 1/3 of its votes. The two anti-Euro parties (Golden Dawn and the Communists) increased their vote slightly. The 500,000 votes gained by Syriza can be classified as floating votes. They can go anywhere: vote against the Euro, abstain or vote for the Euro. The rest of its voters, around 1.7 million people, may be more solid, but even among them some will probably adhere to the slogan "yes to the Euro, but better terms" not really knowing what to vote in a referendum.

As for the opposition parties, the surmise is that the overwhelming share will turn out and vote for the Euro. These parties will not only campaign for the Euro, but also accuse Syriza of incompetence and irresponsibility, plus of course spotting the opportunity of new elections bringing them back to power. They will point to an unknown future and uncertainty is traditionally something voters do not like.

These preliminary observations may change as the campaign gets underway, but most Greeks will see this as a major issue determining the future course for the nation and not about "yes or no to complicated economic issues." Syriza faces an uphill task to explain what will happen after a no to the Euro. Greece will leave the Euro, but under what circumstances? What will it mean for the banking system and for the ordinary Greeks? The burden of proof that it will be better for Greece weighs heavily on its shoulders and even if anger and frustration can and will be mobilized it is doubtful how much it will attract voters interested in their daily life. It will also depend on how the banking system weathers the storm in the week before the referendum. The more turmoil the more likely it is that voters will turn against the government. Closing the banks this week, plus capital controls, do not convey the impression that the government is in control knowing what it is doing.

A majority for the Euro raises the question of what will happen in the Greek parliament. Prime Minister Tsipras stated explicitly that the will of the people will be respected, so the deal will be put forward and parliament will pass it with the votes of the opposition regardless of how the government votes. Syriza may split and new elections seem unavoidable. It is not possible to predict whether that will lead to a stable Greek government capable of sorting out the problems lining up for a solution.

A majority against the Euro takes Greece out of the Euro and its membership in the European Union will inevitably be on the agenda. The transition to a Greek currency will throw the economy into a tailspin. The new currency -- Drachma -- will be depreciated considerably against the Euro and will for a short while take some of the pressure off the economy. Judged, however, by Syriza's economic policy the competitive advantage will be eaten up in a few years' time and, say two to three years down the road, Greece will be back to where it is today -- only worse off having scared international investors away and chased business out of the country.

The financial markets will soon let us know whether the consensus is that Greece leaving the Euro can be isolated from the rest of the Eurozone, in particular the southern European countries plus Ireland, displaying vulnerabilities a couple of years ago. Some of them were enrolled in support programs set up by the Eurozone. It is almost certain that contagion will not take place. A remarkable turnaround has been engineered. Economic growth is back -- the 2015 forecast for Spain goes as high as three percent. They were harassed by imbalances three to four years ago; but not anymore. Furthermore, the bulwark built since then by the Eurozone is much more robust.

There are three wild cards that might change the game completely.

The first one is an obscure result with a low turnout and fifty-fifty-- this will amount to stalemate with no one knowing what to do.

The second one is that Greece returns to sign a deal with the creditors. A last attempt to scare the creditors into further concessions failed. Prime Minister Tsipras finds a pretext for calling off the referendum. Legislation will pass the parliament supported by the opposition, Syriza will break up and Tsipras forms a new center-left coalition. If concocted, such a plan might keep him in power with a more solid majority than the present one.

The third one is Russia. A week before the show down with the creditors, Prime Minister Tsipras visited President Putin, allegedly to discuss a pipeline. It cannot be excluded that Tsipras insidiously hatched the plan with Putin to get help from Russia in meeting financial commitments, while staying in the Euro. He may deftly and deviously spring the surprise at the appropriate time just before the referendum telling the Greek voters that they can vote no to the terms set by the creditors because he has got money from Russia to take Greece over the hurdle and stay in the Euro. The electorate can react in two ways. Either they buy it as the way out of the dilemma or they realize being tricked, beguiled and deceived by their Prime Minister.

If Greece accepts Russian loans, membership of the Euro and the EU belongs to a phantasy world. NATO membership will come into play as Russia certainly asks for access to Greek military installations as a quid pro quo. For Russia and President Putin this will be a God send opportunity to exult and pay back for its sufferings in central and eastern Europa, Ukraine and the Caucasus. No one knows whether Russia has the money. The immediate need is Euro 1.6bn, but over the next six months Greece faces total repayments to the tune of at least Euro 15bn.

For the West the first reaction might be consternation, but bearing in mind that Russian military bases in Greece will reverberate in Turkey, drawing it closer to the West, Egypt as a solid Western ally, and Croatia as a new EU member, plus accession negotiations with countries north of Greece, the repercussions, however unwelcome, might be less dramatic than some years ago. Greece is not any longer the indispensable ally.

What the Greek people will say to such a volte-face is difficult to gauge; the leverage of the Orthodox Church and traditional links to Russia should not be underestimated especially in view of the rivalry with Turkey. It may, however, be difficult to swallow for the large part of Greeks welcoming membership of the EU because domestic politicians over decades have undermined whatever credibility they enjoyed so better to rely on the EU; such a move by their Prime Minister may confirm that their judgment was correct.

If Russia does not seize the opportunity we can conclude that the Russian economy is in much worse shape than anticipated -- also an interesting observation behind the gunpowder smoke recalling Ukraine, Iran's alleged nuclear weapons program and several other geopolitical issues.

Joergen Oerstroem Moeller, Visiting Senior Research Fellow, Institute of Southeast Asian Studies, Singapore; Adjunct Professor Singapore Management University & Copenhagen Business School.
Honorary Alumnus, University of Copenhagen.