BRUSSELS — This week, while protests raged in Athens, the government of Prime Minister George Papandreou survived a critical confidence vote in the Greek parliament. The government can now try to impose further austerity measures. European Union finance ministers have also agreed to seek a new round of assistance for Greece, and have put off, at least for the moment, the looming reality that private investors will have to share in the cost of resolving Greece’s debt crisis. These steps have probably staved off the immediate prospect of a Greek default, or “managed restructuring” of an increasingly costly debt burden. But few observers are confident about even the medium-term outlook.  Europe’s slow and confused response to the crisis holds significant risks for the global economy — risks evident on Wall Street last week. But the geopolitical risks are just as great, and may be felt on both sides of the Atlantic.

Greek society may have reached a breaking point. The additional austerity measures being contemplated come against the backdrop of a shrinking economy and mounting unemployment, with little prospect of relief anytime soon. The progressive de-industrialization of the Greek economy, and declining competitiveness in key sectors such as tourism, do not bode well for recovery. Even Greece’s famed shipping sector is largely based offshore, with limited returns to the domestic economy. Vigorous global growth might help to pull Greece out of its financial morass.  This is a bet on developments far from Greek control. In the meantime, the renewed drive for austerity is unlikely to make for political stability.

Under these conditions, strikes and riots are not the only risks. Greece has a reservoir of anarchist violence and left-wing terrorism harking back to the ideological struggles of past decades.  Terrorist networks along the line of the November 17 group, which targeted Greek and international figures in the 1990s, may have relatively few adherents. Yet Greece is a relatively small society of 11 million, and it does not take much to scare away investors and visitors or to destabilize Greek politics.  At the same time, xenophobic right-wing groups have emerged more recently on the Greek scene, espousing the same violent anti-immigrant rhetoric heard elsewhere in Europe.  Both extremes are capable of turning their anger against business and political elites who have remained largely untouched by the crisis affecting Greek society as a whole. Large-scale privatizations, at what many will inevitably see as fire-sale prices forced on Athens by foreign institutions, will only add to the potential for turmoil and terrorism.

An unstable Greece will have potentially significant implications for the future of the Balkans and the eastern Mediterranean at a time when transatlantic partners need a stable and capable Southern Europe to help manage revolutions and conflicts to Europe’s south. Egypt, Libya, and Tunisia are close neighbors. Athens has historic ties to the Arab world, and increasingly close ties to Israel.  Greek-Turkish relations are vastly improved from the crisis-prone atmosphere of the past.  In the southern Balkans, where there is much unfinished business in terms of development, democratization, and security, Athens has played an active, stabilizing role. An inward-looking, politically unstable, and possibly bankrupt Greece may find it difficult or impossible to play a positive role in these critical regions. The opportunity costs will be high for the neighborhood, for Europe, and for the United States.

In transatlantic terms, the stakes are high. Quite apart from the risk that a Greek default might trigger wider financial panic, mounting debt troubles in Southern Europe threaten the future of the European project as a whole. A decade ago, core actors such as Germany would have seen Southern Europe’s troubles as a threat to the strategic objective of a closer European union. Today, budgetary goals and domestic politics appear to trump geopolitical vision.  The lack of a concerted, systematic response to the debt crisis in the eurozone risks the progressive de-coupling of core and peripheral Europe. A more fragmented Europe will weaken an already fragile transatlantic relationship at a time when greater cohesion is needed to deal with challenges on Europe’s borders, above all in Europe’s Mediterranean “near abroad.”

The strategic consequences of the crises affecting Southern Europe are not uniform. Troubles in Portugal may pose fewer systemic risks. But Spain and Italy — both under growing pressure from bond-rating agencies — pose more critical tests by virtue of their scale and location.  Washington may be tempted to treat the crises in Southern Europe as a problem for Brussels to manage. But beyond the eurozone, the stakes are strategic and transatlantic in nature.  Recent comments from U.S. Treasury Secretary Timothy Geithner on the need for a much faster and more comprehensive approach — more money and less hedging from leading European states – are exactly right. Policymakers on both sides of the Atlantic need to look beyond the financial dimensions of the Greek crisis, and consider the geopolitical risks of inaction.

Ian O. Lesser is a Senior Transatlantic Fellow with the German Marshall Fund.

Photo by George Laoutaris

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