Greek Debt Crisis Fallout: European or Russian bailout?

For professionalized populations that have been trained to accept the rule of law, the legality of a contract determines who holds the power in the contractual relationship.  From a broader, more mature perspective, law is nothing unless the People view it as legitimate enough to follow.  

There are times when what is legal is wrong and what is illegal is right.  When a legal system declares too many wrongs legal, the People lose respect for the Law and the Law loses its power.  In other words, a legal system that continually fails to address the interests of a population loses its illegitimacy. 

This can be seen in economically depressed areas with high levels of crime.  Calls by religious conservatives to ignore any Supreme Court’s ruling that favors gay marriage demonstrate a loss of faith in the US legal system.  Another example is the ongoing Greek Debt Crisis.

Capitalism and democracy conflict whenever the rules of an economy fail to address the needs of the people it is supposed to serve.  In the case of Greece, the Greeks initially accepted the rules of the Eurozone in order to derive the benefits of membership. 

Where the Greek government is contractually obligated to pay back the debt it owes and agreed to pay back under international law and norms, the Greek People’s democratic right to choose their leadership means they can choose leaders who will not impoverish them to payback foolish creditors.

Clearly, there would be consequences to the Greek economy should they default on their debt obligations due to the reality that Greece is reliant on the global economy and cannot turn inward to provide for all of its modern needs, but the consequences for a Greek default are in the long-term.  

After all, it is the investors who need to collect money from the Greeks, not the other way around.  It is only when the Greeks need more money that their decisions regarding a default on public debt will be an issue for them.

Unfortunately, this is the result of treating governments like businesses and treating all countries as though they are equal in terms of economic development, i.e. loaning money that may not be able to pay back.  Governments may need to be structured like businesses to properly function, but they are not businesses and they do not all have the same economic characteristics.

Governments exist solely to serve the interests of their Peoples.  When legal contracts undermine that mission, the People’s interests trump whatever legal obligations there are to businesses, foreigners, and special interests.  Unfortunately, the Greek People are suffering due to austerity measures, thus their government has no choice but to fight austerity, which is something the Germans should understand from their post-World War I era experiences.

With that in mind, Greece may well have found a means of balancing the need to address the economic interests of the Greek People and the long-term consequences of a debt default.  Using a potential Russian bailout, the Greek government could either end up discharging their financial obligations at the expense of Russians, i.e. eventually defaulting on refinanced debt owed to Russia, or forcing the EU to offer them better bailout terms.  Given Germany and the rest of the Eurozone will be hurt by a Greek default, the Greeks have the greatest leverage in this situation.

That said, the Putin government may be willing to bail out Greece in order to divide and conquer Europe as Russia struggles to fend off Western sanctions over Putin’s Ukraine policies, but any benefit from a Russian bailout of Greece would largely be symbolic.

Even if several debt-laden countries could be seduced by Russian bailouts, the support of every European country is not needed to stand against Russia while recipients of Russian bailouts would face painful diplomatic consequences.  If anything, attempts by Moscow to buy Western support are only going to accelerate the damage being done to the Russian economy.

In many respects, the Kremlin has a major ego problem where the Russian government likes to think of itself as a global power with limitless resources to take on any and all threats to Russian dominance.  The truth is that Moscow cannot afford to financially support every country it wants to influence, which is why the Soviet Union collapsed in the first place.

The Russians would also be wise to recognize trillions of US dollars that have been given to foreign country that feel no obligation to agree with American policies they do not wish to support.