Greek PM in Washington at Important Time

Q1: What did Prime Minister George Papandreou of Greece hope to accomplish during his visits to Berlin, Paris, and Luxembourg prior to visiting Washington?

A1 [Conley]: The prime minister had two objectives in the lead-up to his meeting with President Obama on Tuesday: to get clarity and specificity about eurozone support to allow Greece ready access to credit on improved terms; and to cool down the political rhetoric, specifically between Greece and Germany. While Papandreou successfully achieved the latter, European financial specifics remain beyond his reach.
By passing its third austerity package in three months on March 5, the Greek government finally received acknowledgment from European leaders that they were doing their “homework.” This package, coupled with an oversubscribed bond sale last week, has given the Greek financial crisis, and the government, some needed political breathing room. The devil, however, will remain in the implementation and transparency of the austerity package details.

European politics surrounding the Greek situation still leave a lot to be desired. Although German banks have the third-largest exposure to Greek debt, the German government and public remain strongly opposed to a German bailout of Greece. Chancellor Angela Merkel of Germany has refused to discuss support for Greece, insisting that the question of a bailout “absolutely doesn’t arise.” President Nicolas Sarkozy of France took a different tack during his meeting with Papandreou, taking a swipe at market speculators and assuring the Greek government of eurozone solidarity (but with no details).

Over the weekend, White House adviser Paul Volker declared that he was “still a believer in the euro.” Perhaps this was the most significant gift the Obama administration could have given to Papandreou before his arrival in Washington.

Q2: How does the Greek crisis affect U.S.-Europe relations and what can we glean about today’s political leadership in Europe?

A2 [Conley]: In 1999, senior officials in the Clinton administration strenuously warned Europe not to move forward with its monetary union until it had developed a unified fiscal policy to accompany it. This structural flaw has now come home to roost and the financial problem is far from over: Greece must borrow $72 billion this year to cover its budget deficit and repay its existing debt—and Greece is a small European economy—and other European debt comes due this spring.

As Europe continues to be distracted by the Greek financial crisis and the implementation of the post-Lisbon EU architecture, and as the popularity of national governments continues to drop, Europe will find itself increasingly challenged politically and financially to support the Obama administration’s foreign policy objectives. Although the immediate Greek crisis may not matter to the United States, a distracted Europe will.

Q3: How does the crisis in Greece affect the stability of southeastern Europe?

A3 [Bugajski]: For many years Greece has been perceived as an EU success in southeastern Europe and an encouragement for other countries to meet the tough conditions for EU accession. The current economic crisis in Greece may undermine the region’s reformers and increase the influence of economic nationalists. Moreover, EU governments may become less supportive of the membership of western Balkan states, arguing that they may prove to be fiscally profligate and require rescue packages at a time when support for EU enlargement is dissipating among the general public in the member states.

Q4: What does the Obama administration expect from Athens in the Balkan context?

A4 [Bugajski]: Washington wants to support Greece as a generator of stability in a region that is still threatened by territorial and ethno-national disputes. One important element would be a final resolution of the name of the Republic of Macedonia, its current constitutional name, or Former Yugoslav Republic of Macedonia (FYROM), as it is presently recognized in international institutions. This would unblock the country’s invitation into NATO at the Lisbon summit in November. The lack of progress after years of UN mediation may increasingly alienate the Albanian population from the Slavic majority and precipitate the collapse of the bi-ethnic coalition government. High-level U.S. involvement in the negotiation process would reassure Skopje that an adjustment in the country’s name will not undermine the identity or security of the Slavic Macedonians. A breakthrough over the Macedonian state name would also be welcome in Brussels as an important contribution by Athens to Balkan stability.

Heather A. Conley is director of the Europe Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Janusz Bugajski is director of the New European Democracies Project and senior fellow in the Europe Program at CSIS, where he also holds the Lavrentis Lavrentiadis Chair.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a nonprofit, nonpartisan organization, located in Washington, D.C. CSIS does not take specific policy positions. Accordingly, all views expressed herein are solely those of the author(s).

© 2010 by the Center for Strategic and International Studies.