Leonidas Stergiou LEONIDAS STERGIOU

US President Trump and what this means for Greece

COMMENT

The impact of Donald Trump’s victory on Greece may be indirect rather than direct. The presence of the IMF in the eurozone will become less likely, and Greek debt relief may not be such a significant issue on the new administration’s agenda.

TAGS: Politics, Diplomacy, Analysis

The election of Donald Trump as president of the United States could be considered a negative for the economy but a positive for the geopolitics of Greece. The impact on Greece, which is a very small part of the global political and economic puzzle, may be indirect rather than direct.

Taking into consideration Trump’s pre-election campaign and his foreign policy positions, we understand that the new president will mainly concentrate on the United States domestically and in terms of trade relations with China (by putting up barriers). This introversion and protectionism may allow more room for Russia to become the major player and increase its economic relations with China. Europe will also attempt to increase its trade with China. However, this is expected to be limited by political and economic problems.

Also, Europe will have to re-evaluate its relationship with Russia. The election of Trump is expected to increase anti-systemic votes in Europe, while the European Union economy will remain fragile and the southern member-states will remain in debt. This development may increase the political strength of Marine Le Pen in France and Beppe Grillo in Italy. Thus, the stance of Germany will play a key role in economic and political developments inside Europe and the eurozone. The management of Brexit complicates decision-making in Europe even further.

Now, the question is what the impact of all this will be on the economy, politics and geopolitics of Greece. US introversion and its focus on China may mean two things: The presence of the IMF in the eurozone will become less likely, and Greek debt relief may not be such a significant issue on the new US administration’s agenda.

Russia and Europe will surface as the major players in the geopolitical developments in the territory at large. This means that the future of relationships with Turkey, the refugee crisis, the Cyprus issue, and issues related to the Aegean Sea will be affected by the balance between Europe and Russia. The increase of nationalism or Euroskepticism in Europe may either push Germany and the eurozone to become more flexible and ease fiscal rules or make them adopt a tougher stance against anti-systemic forces (and member-states where these forces are increasing) in order to set an example.

Thus, the central scenarios could be as follows:

Geopolitics: The stronger role of Russia, in conjunction with Germany’s bad relations with Turkey (and potentially with Trump), could give Greece the opportunity to develop better relations with Russia. This may have a positive impact on the refugee issue in Greece as well as on the country’s relations with Turkey (Aegean Sea, Thrace etc) and developments with regard to the Cyprus issue, as neither Europe nor Russia have any obvious reason to make Turkey stronger. Also, a solution in the Turkey-Cyprus case is not considered a top priority for Russia. \u0391 delay and postponement of a solution on Cyprus would benefit Greece primarily because an upcoming economic crisis in Turkey will make the latter weaker during the negotiations.

Economy: Lower US interest in Greek debt relief does not equal a positive development for the Greek economy. If we assume that this is true and the IMF also does not participate in the bailout program, Greek debt relief becomes less likely. In this case, a financing gap should be filled, and an amendment for the MoU (or a new one) should be decided. If this happens, it will not be a positive development for the Greek economy. However, the overall economic landscape in Greece and the eurozone is linked to political developments as well. Already, we are anticipating the eurozone and IMF’s attempts toward an agreement on Greece’s program.

Politics: A strengthening of “Le Pen-Grillo” style forces will put pressure on Germany and the eurozone to review their politics and economic policy. If Germany and other supporters of austerity ease their stance, the economic implications for southern members (including Italy, Spain, Portugal and Greece) are expected to be less negative or somewhat positive. A flexible stance as regards fiscals may give these countries the room for further reforms as well as avoid extreme reactions and developments that may lead to a eurozone exit or increased fears of a member’s exit (e.g. Italy).

On the other hand, the adoption of a flexible stance is not so easy in political terms due to the negotiations with the United Kingdom over Brexit. A “smooth” divorce may whet the appetite for more exits. However, if the eurozone finds a balance in fiscals and adopts less austerity, this may favor Greece as well. In this case, a financing gap may not arise, and a new MoU (or an extension of the third program) may not be needed after 2018 to 2019. We will have a clearer view on the upcoming developments in the short term, due to the fact that the first milestone is Italy’s referendum on December 4.

Also, opinion polls in France in the next few months will give us a better view on Le Pen’s popularity as well as the reactions of the core eurozone members.

Taking into consideration all of the above assumptions and scenarios, we conclude the worst-case scenario foresees a financing gap after 2018 and an unwillingness of the eurozone to extend a new bailout loan. In this case, the risk of a Grexit will increase. However, it will depend on the overall political and economic situation in the eurozone at the time.

Nevertheless, we do not believe it is worth trying to predict the possibilities for the next two years because many political developments will take place in the meantime. Geopolitics and politics will remain rather positive if Greece improves its diplomacy and balances with Russia, Europe, and the United States.

Online