John Sitilides Explains to SFR “What Will Come Next for Greece?”

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FG:  I’m very pleased to say, we have John Sitilides. He is a Principal at Trilogy Advisors LLC., which is a federal government affairs and public policy firm. But he’s also our go-to expert on matters involving the eastern Mediterranean and in particular, Greece. John has been active for many years in training and otherwise advising our State Department and the sort of public policy community in Washington on these regional concerns and boy they’re at a high point right now. John welcome back. It’s good to have a chance to talk to you in the aftermath of the referendum vote over the weekend in Greece.

JS: Thank you for having me Frank.

FG: Well, so what did you make of the outpouring of “no” votes on this referendum? There were some who said it wasn’t entirely clear what people were voting on but none-the-less, the sentiment seemed to be against austerity-as it was when they elected this present government. Is that how you read it?

JS: I’m actually looking at it through a somewhat different lens Frank. I don’t know any Greek that was for more austerity. I think that the way that the Tsipras government framed the debate was masterful. What they were able to do was make this a vote about whether to accept more austerity or not and that’s how the ‘no’ voters saw this. But the ‘yes’ voters saw this not as an austerity vote but one that would keep Greece anchored in the Eurozone and I think that was the more rational, strategic longterm approach but unfortunately it wasn’t the ’emotional approach’. The ’emotional approach’ victory of the ‘no’ vote was as Tsipras framed it, ‘standing up for Greek pride, Greek dignity, Greek sovereignty’. However, this isn’t going to be very helpful when you get down to the technical details of negotiations with European creditors. So, I’m very concerned right now that we’re entering a period of near-term and potentially medium-term uncertainty about the political and economic future of Greece and of course, what that portends for the wider Eurozone.

FG: Well let’s talk a little more about that John Sitilides because it does seem that the departure of the Finance Minister, who had not only been conducting these difficult negotiations with European creditors but also antagonized them quite a bit in the process and in the course of this referendum, has changed somewhat the lineup of the Greek negotiating team. But is it likely to make any difference or better yet, will this vote make any difference in terms of the attitude of these European bankers and governments?

JS: At this point I think that Varoufakis’ resignation is more symbolic than anything else. If we were to recall back around March or so, he already began to pull back from many of the direct negotiations that he had been leading after the January victory of Syriza, largely because he was increasingly despised by Euro creditors who resented his constant lecturing about the proper way, as he saw it, for Europe to deal not only with Greece’s but other southern European debt-ridden governments. So he pulled out several months ago.

Now his resignation is formal but Tsipras is still the head of the government and he’s still having to work with forty percent of his Syriza committees, or the party that leads his movement that runs the governing coalition and this is still a dedicated band of Maoists, Marxists, Leninists, self-avowed Communists and I think this is going to be the real problem going forward in that what they’re seeking to preserve in Greece, sort-of a rent-seeking, clientelist, heavily-statist economy that seeks to extract as much tax revenue from private sector, wealth-producing entities in Greece to redistribute to voters to remain in power is completely antithetical to what European creditors are seeking from Greece, in exchange for whatever concessions might be made for a grand bargain. I think that as long as Tsipras is at the helm and his left platform committee, they’re really dictating ideology and his governing coalition- as long as their in power- I don’t see how this ends happily anytime in the near future.

FG: Well in part I guess, it will depend how flexible the Europeans are at this point. John, based on what you’ve been watching up to this juncture- the posturing if you will but also the firm positions that have been taking, the cutoff that has caused the banks in Greece to close and the like. Do you anticipate more flexibility from the Europeans at this juncture? I mean you’ve said you don’t think this ends well for Greece or for the European Union. How do you seen this playing out in the next few days?

JS: In an ideal situation, there would be a grand bargain that concedes great errors made by the parties on both sides. The Europeans should not have imposed such a drastic regime of austerity and the suppression of economic demand that was precisely the anti-growth strategy that has brought Greece to its knees in the last five years. By the same token, the Greeks not only should have embarked on a path towards structural reforms five years ago but should have been far more willing to compromise with the Europeans, who in fact have forwarded more than a quarter-trillion euros in aid to Greece to keep the economy solvent. So ideally what you would have at this point is a grand bargain of significant debt relief especially led by the IMF in exchange for, not only enactment but implementation of deep, profound structural reforms to essentially revamp the political economy of Greece’s corrupt, statist system.

The problem that we have is that A) with this ‘no’ vote now at a resounding three-fifths support for the current government of Greece, they feel rather emboldened to go back and say ‘well how to reject a democratic will of our country?’ and it’s difficult for Europe to promote ‘democracy’ in the form of solidarity Europe-wide if they’re essentially disrespecting the democratically-expressed will of the Greek people. But by the same token Frank, what you have is, in the European Union, are a system of rules that has been clearly defined and implemented especially by the Germans, in a leadership position here. If rules are going to determine the future of the Eurozone, it’s difficult to see how the current Greek government fits into that future. So you have an essential collision course here and you don’t know how this is going to play out with yet another round of brinkmanship between a newly-emboldened Tsipras government and a European Union that hasn’t decided yet whether it supports rules overall or whether it promotes this European project of solidarity and is willing to potentially bend the rules to allow for governments: Greece for today, tomorrow perhaps Spain, Portugal, and others with major debt obligations that are seeking to use the Greek system as a paradigm for their own massive debt relief and to get out of these types of rules that Europe insists is required for the longterm stability of the Euro as a currency.

FG: John one of the wild cards in this, we spoke about it the last time we visited together and again our guest is John Sitilides. He is the Principal at Trilogy Advisors LLC. and an expert on the eastern Mediterranean and a consultant to the State Department. Let me ask you: when you look at the crisis at hand and the Maoists and other Marxists in the government of Greece or supporting it, what role do you anticipate Russia might play and perhaps China for that matter? Possibly creating a new dynamic in these negotiations?

JS: Well lets look first of all Frank at what I would say, are Russia’s two major interests here. One of course, is to ensure as long and as enduringly as possible, European dependence on Russian natural gas and other fossil fuel supplies. The extent to which Russia is looking to build this new pipeline across southeastern Europe that would involve both Turkey and Greece, to bypass Ukraine and see to it that any prolonged uncertainties in Ukraine do not disrupt the longterm supply of Russian natural gas to Europe. The Russians would very much want the Greeks to partner and formally over the long term, there’s been a lot of teasing over this issue over the last several months and as a matter of fact, there was a phone call between Tsipras and Putin the day after the referendum.

We’ll see now what the exact content of those discussions might be but the Russians definitely want the Greeks to partner in this new pipeline that would maintain longterm Russian control over European energy supply. In addition, I believe that Russia would very much want to see a hindrance to U.S.-Greek-NATO links where Greece is able to help the United States and the NATO alliance project power in the southeastern European theater; especially as it pertains to the Middle East, the Levant, and Northern Africa.

FG: Very important strategic calculations in play here, John Sitilides we look forward to gaming this forward with you and also your running commentary on how these various players are playing their hands. Keep up the good work my friend at Trilogy Advisors and come back to us again very soon.