USA strengthens Greece – Erdogan facing an imperial overstretch?
US Secretary of State Pompeo visited Greece in October 2019 after Erdogan’s offensive in northern Syria. On the one hand because of the refugees, on the other hand to arm Greece as a potential front-line state against Turkey, should Erdogan take on the USA and move closer to Russia or even leave NATO. Greece seems to be a potential new front-line state against Turkey, Russia and China on the southern flank of NATO, especially since Turkey and Greece could become parts of China’s New Silk Road.
Even before Pompeo signed the US-Greek military agreement, there was lively discussion in military circles about the question of the Balkans and, in particular, access to Greek military bases. In July, the US ambassador to Greece, Geoffrey Pyatt, pointed out in an interview with Stars and Stripes that the US base in Souda Bay, which played a role in the war in Syria, was „quite full“. US military spokesmen added they were concerned about Chinese investments in the Athens port of Piraeus: „If we want to bring a ship, a warship, to Piraeus, China can say no.“
Prior to Pompeo’s visit, Pyatt explained US policy as follows: “In a new era of great power conflicts and the race for the greatest hydrocarbon discoveries in the last decade, this global hub between Europe, Asia and Africa is once again at the forefront of American strategic thought. After the Eastern Mediterranean was taken for granted by the United States for years, the US is taking the time to analyze precisely and comprehensively how we can better assert US interests …“.
This has led to the signing of the new US-Greek mutual defense agreement. The open-ended agreement, which its supporters at that time claimed would not require the approval of the Greek parliament, provided for an expansion of the naval base of the US Sixth Fleet in Crete, the creation of drone bases in central Greece and a military base and a natural gas plant in Alexandropoulis. This latter base would allow US natural gas to be shipped to Greece. This could break the Russian gas monopoly in the region over the entire Balkans via gas pipelines still to be built.
Militarily, the Alexandropoulis base threatens Russia and the Balkans as well as Iran and the Middle East. It would allow Washington to send forces to the Balkans without traveling through Turkish and then Russian-controlled waters into the Black Sea. As the Greek defense analyst Efthymios Tsiliopoulos told Al Jazeera, Washington could “support operations in the Balkans much faster than via other ports” with this base in Alexandropoulis. He added that the US troops on the Greek bases are „easily deployable“ in the Middle East.
The Pentagon could also use these bases to block ships carrying refugees trying to flee across the Aegean Sea from the Middle East to Greece and Europe.
With regard to the resurgent conflicts between Greece and Turkey over Cyprus and over the oil drilling rights in the Eastern Mediterranean, Pompeo has unequivocally reaffirmed Greece’s position vis-à-vis Turkey. Pompeo said he met with Greek, Cypriot and Israeli officials: “We have made it clear that operations in international waters are governed by a number of regulations. We told the Turks that illegal drilling is unacceptable. „
Now a year later, after Erdogan has also sent Turkish troops to Libya, sparked a dispute with Greece over gas reserves in the Mediterranean and now also intervenes in the Caucasus War, Pompeo visited Greece again in September 2020. MENA-Watch reports on the visit:
“USA supports Greece against Turkey
In the face of Turkish threats, US Secretary of State Mike Pompeo backed Greece with a state visit and specific commitments at the end of September – diplomatically, militarily and economically.
Together with the Greek Prime Minister Kyriakos Mitsotakis, Pompeo visited the American-Greek naval base in Souda in Western Crete on September 29th. There he was received with military honors.
In terms of the number of ships, Souda is the second largest naval base in Greece and the most important US base in the eastern Mediterranean. In a speech, Pompeo underlined the importance of military relations between the USA and Greece, which is evident in the fact that the USS Hershel „Woody“ Williams, „the newest expedition base of the US Navy, will call Souda Bay its home“ as Pompeo said.
This announcement is likely to make Turkish President Erdogan sit up and take notice, especially since the USA does not own many ships of this class. The USS Hershel “Woody” Williams is a 239-meter-long expedition base ship with a 4,800-square-meter landing pad, a fuel and equipment store, magazines, and repair and mission planning rooms. She has work and living quarters for several hundred men and can put small ships at sea and take them back to sea.
The V-22 Osprey tilt rotor aircraft is also stationed on it, which can take off and land like a helicopter, while at the same time being able to fly as fast as a turboprop aircraft with its rotors tilted forward. The V-22 Osprey has proven itself in humanitarian missions such as the rescue missions after Hurricane Dorian in the Bahamas in 2019, but could also support military operations – for example, dropping Navy Seals on an island.
The foreign affairs correspondent for the New York Times, Lara Jakes, sees the stationing of the USS Hershel “Woody” Williams in Crete a “step that can be seen as symbolic support for Greece in the confrontation with Turkey. Jakes points out that the ship will be stationed less than a thousand kilometers from the Turkish coast. According to Jakes, the Hershel “Woody” Williams “is not the type of ship that could intervene in a high-intensity conflict if the increasing tensions between Turkey and Greece should boil over … But its deployment near the place where Turkey sent surveying and drilling vessels to search for natural gas earlier this year could be read as a symbolic warning of America’s growing anger over Ankara ”.
In his speech, Pompeo said Souda was „literally the perfect choice and symbol of a defense partnership that will continue to expand and grow“. Security cooperation between the two countries is „particularly important as Russia continues to destabilize the region, especially in Libya, where the US is demanding the withdrawal of all foreign forces and support for military de-escalation and Libyan reconciliation.“
Controversy about natural gas
Pompeo reiterated „US support for Greece’s ongoing efforts to diversify energy routes and supplies across the region“ – referring to the plan for a natural gas pipeline connecting Israel and Egypt to Greece through Cyprus, which is threatened by Turkey.
„Free markets“ should decide „instead of Russian Gazprom“ on the energy supply, according to Pompeo. This is to be understood as an allusion to the pipeline projects planned by the Kremlin from a geopolitical point of view: the Nord Stream pipeline, which is also controversial in Germany, which is to connect Russia to Germany via the Baltic Sea, and the TurkStream pipeline, which has been carrying Russian gas since the beginning of the year the Black Sea to Turkey and from there to Bulgaria.
In a joint declaration, Pompeo and Mitsotakis welcomed the establishment of the East Mediterranean Gas Forum (EMGF) a week earlier and confirmed their support for cooperation within the framework of the “3 + 1 format” between Greece, Cyprus, Israel and the USA.
The US Secretary of State last visited Greece in October 2019. At that time, he signed a military agreement that expanded a bilateral partnership that had existed since 1990 and allowed the US to use Greek military bases, including the Larissa and Stefanovikio air bases.
The agreement, which was ratified by the Greek Parliament in January 2020, includes the training of soldiers, the refueling of aircraft and ships, short-term maintenance work, storage of materials and operations in the event of a crisis. American drones are also allowed to take off and land on the airfields. In return, the United States had announced that it would support Greece with maneuvers.
Agreements that were made during Pompeo’s current visit include, among other things, a modernization of the Greek F-16 fighter aircraft and the Greek shipyards.
There was also talk of the planned floating LNG terminal, which is to be built with American support at Alexandroupolis, near the Greek-Turkish land border in Thrace. From 2023, liquefied natural gas (LNG) is to be delivered there by ship from the USA, regasified and delivered to consumers in Europe via pipelines.
The US produces far more natural gas than it consumes, while the EU countries depend on imports to meet their needs. 40 percent of the natural gas consumed in the EU comes from Russia, 18 percent from Norway and 11 percent from Algeria.“
So while a strategic energy axis USA-UK-Greece-Cyprus-Egypt-Greece (maybe Lebanon after the border agreement, if the Iran-controlled Hezbollah should agree) versus Russia-Turkey-Iran is emerging, the USA are strengthening the Greek position, initially more symbolically and signaling to Erdogan that they will only tolerate his expansions as long as they oppose Russia and are not directed against US interests. Especially since Erdogan threatens to exhaust himself not only militarily but also economically.
Erdogan’s low interest rate and economic policy, his wars of expansion and the Covid crisis are causing the Turkish lira to plummet further, which has now had serious consequences for the economy, be it the debt of banks and companies, inflation, and meltdown of foreign exchange reserves. Erdogan could grudgingly see himself forced to beggar for IMF aid, which he has always vehemently and in principle rejected so far. In addition, the trust in the independence of the Turkish statistical office and the Turkish central bank are now fundamentally in question, which increasingly discourages investors. In view of this development, Birol Aydemir, formerly head of the Turkish statistical office Turkstat, has now founded his own party in competition with Erdogan’s AKP. The Handelsblatt summarizes this as follows:
“The Turkish lira is tumbling from record low to record low. In return, the dollar rose to a record high of 7.955 lira, and the euro even rose to 9.3662. Efforts by the central bank to intervene in the foreign exchange market have now come to nothing, and the surprise interest rate hike in September also seems to have fizzled out.
The collapse of the national currency brings the NATO member more and more distress. Since the beginning of the year alone, the lira has lost almost a third – within a decade it has been more than 80 percent.
In addition to the country’s many problems with the numerous geopolitical tensions, there has been an interesting development for a few days: According to Commerzbank, Birol Aydemir, formerly head of the Turkish statistical office Turkstat, has publicly claimed that the official Turkish data would be „fudged“ and the statistical office really not be an independent institution.
Specifically, he warned that manipulated data would ultimately lead to a dangerous slide into complete break-down. To put it into perspective: Aydemir founded a new party in March and is part of the opposition to the ruling AKP party. (…)
The following is an overview of the consequences that the expiry of the lira or could have:
1. Companies are heavily indebted abroad
The national debt of Turkey is generally considered sustainable. However, the situation is different for companies and financial institutions in the country. Many have taken out loans abroad in recent years because they often have to pay lower interest rates there.
In the next two months alone, they will face repayments totaling nearly ten billion dollars. „A further devaluation of the lira would put a further strain on companies‘ balance sheets and have a negative impact on investment prospects,“ says Ugras Ulku, chief analyst for European emerging markets at the Institute of International Finance (IIF).
This comes at a time when increased investment is necessary to increase productivity, reduce unemployment, improve competitiveness and get exports going. In foreign trade, however, the weaker currency benefits companies because they can sell their products more cheaply abroad.
2. Weak lira leads to high inflation
The weakness of the currency is making itself felt in the pockets of the population. Inflation is a sore point for Turkey, which has a history of soaring cost of living – the era of hyperinflation was only overcome 17 years ago. The rate of inflation fell slightly in September, but at 11.75 percent is well above the central bank’s target of five percent. Experts do not expect inflation to calm down anytime soon.
„We assume that the depreciation of the lira is the main driver of inflation,“ says Goldman Sachs expert Kevin Daly. If the currency loses value, imports become more expensive. Daly also points out that inflation has recently been curbed by tax cuts and that price pressure in the core rate remains high.
The central bank is hardly able to get inflation rates under control. Even after the surprising rate hike, the interest rate is 10.25 percent below the rate of inflation. It thus offers little incentive for foreign capital and weakens the currency of the country, which is already groaning under a current account deficit.
3. Confidence in the central bank is waning
An important reason why investors are losing confidence in the lira is the question of the independence of the central bank. Turkish President Recep Tayyip Erdogan is an advocate of low interest rates. Many investors fear its influence on the central bank.
The interest rate hike of 200 basis points in September was all the more surprising. The move met with approval from experts – but it could hardly stop the lira’s price slide. Analysts also welcomed the higher upper limits for foreign exchange transactions with foreign credit institutions.
„This suggests that the Turkish authorities have finally understood,“ said Timothy Ash of Blue Bay Asset Management in a first reaction. However, many experts consider further interest rate hikes to be necessary. „The interest rate has to be 100 or 200 basis points above the inflation rate – then we can come to a more constructive use of the lira,“ says Commerzbank expert Tatha Ghose.
4. Foreign exchange reserves are dwindling
The central bank had already braced itself against the decline of the national currency by intervening in the foreign exchange market. As a result, however, the foreign exchange reserves are dwindling. Goldman Sachs estimates Turkey burned nearly $ 80 billion this year alone to prop up the currency. According to recent data, there is less than $ 20 billion in reserves left.
Another key figure that is always important for the foreign exchange market is important. The “freely available reserves”, which exclude minimum foreign exchange reserves that banks hold at the Turkish central bank. That number has been slipping steadily into negative territory since the end of August and reached minus eight billion dollars at the end of September. In other words: Turkey as a state has fewer total reserves than its banks.
5. An IMF aid package is likely to have serious consequences
The Commerzbank foreign exchange analysts are sticking to their assessment, which they have taken for a long time: Ultimately, it will be difficult to avoid something like an IMF aid package. „Erdogan’s monetary policy experiment will fail,“ said Commerzbank expert Ulrich Leuchtmann more than a year ago.
Should that happen, one can look forward to the political ramifications in Turkey. Erdogan has always excluded such an aid package. „
In any case, Erdogan runs the risk of exhausting Turkey economically and militarily and suffering an imperial overstretch. Erdogan’s foreign policy, which follows Mussolini’s guideline “Much enemy, much honor”, is the exact opposite of his former Foreign Minister Davotoglu and his “zero problem” policy. Like Birol Aydemir, Davotoglu has also founded his own party in competition with Erdogan’s AKP. But there is still the risk that the opposition will split up, especially because of the 10% hurdle, which in turn could play into Erdogan’s cards.