Country heading for euro exit, bankruptcy unless another bailout can be agreed upon

China's westward gaze, toward Central Asia and beyond, perceives Greece as a key strategic link in its ambitions to join China with Europe by reviving the Silk Road.

The strategic investment by China Ocean Shipping (Group) Co in the port of Piraeus, one of the largest in the Mediterranean, has been successful, and China has been invited to submit a bid by September for a controlling 51 percent stake in the Greek port. Also, a planned high-speed railway from northern Greece to Belgrade and Budapest would provide an important eastern link between the Greek end of the New Silk Road and Eastern Europe.

China is building a significant stake in Greece. Yet Greece is on the verge of bankruptcy. If the Europeans don't rescue Greece, the country will leave the euro, default on its debts and descend into great economic and social uncertainty.

The election of Syriza as the governing party in January signaled a new phase in Greek politics. This sentiment downplays Greece's huge debt commitments to Europe and the International Monetary Fund, and instead emphasizes nationalism and the Greek way of life. By voting for Syriza, Greek's army of unemployed - about 25 percent of the working population - showed their rejection of the economic hardship demanded by the country's creditors as a condition of a new financial bailout.

Is Greek society broken? And, if so, can the country really be trusted as a long-term strategic partner for China?

Greece joined the euro in 2002 by hiding some of its debt and squeezing inside the fiscal membership rules. Perhaps Greece should not have joined the euro, because the Greek economy is too weak, corrupt and dysfunctional to be able to meet its commitments as a member of an economic club led by Germany. Today and tomorrow, the only way that Greece can remain a member of the euro is by way of regular economic transfers of wealth from the richer European countries. But are Western European taxpayers, led by the Germans, with their own problems to fix and their own lifestyles to protect, prepared to do that?

In the same way ancient Chinese philosophy and art profoundly affected Asian culture, Greek politics, philosophy, drama and architecture, brought to its highest expression in Athens nearly 2,500 years ago, had a profound impact on Western society. Just opened at the British Museum in London is an exhibition of ancient Greek sculpture, The Body in Ancient Greek Art. The exhibition contains Greek marble sculptures more than 2,000 years old, which show an ideal athletic male form. Greek sculpture defined a perfect male shape that is the foundation for the Western perception of male beauty today. The Europeans feel that for them, Greece is a special country because they owe their cultural heritage to it.

It's partly for this reason that Greece was encouraged to join the euro 13 years ago, although its economy was obviously not strong enough to be able to live with powerful countries such as Germany. Also, Greece's position between Europe and Asia is significant. It controls the entry from the Mediterranean to the Black Sea and Russia's warm water ports.

Two thousand years ago, Greece looked East more than West, first as it fought off an invasion from Persia (today's Iran). Then, Alexander the Great took his army across Central Asia to within sight of the Tian Shan Mountains, which border China's western region. The West wonders whether Greece is part of Europe or Asia.

At the time of the first big Greek financial crisis in 2011, German, French and British banks, lured into complacency by Greece's membership in the euro, were big lenders to Greece. That was the main reason for the huge financial bailout of Greece arranged by the European Union and the IMF. Today, although the French bank Credit Agricole and the British-Hong Kong bank HSBC are still both significantly exposed to Greece, European bank exposure has been much reduced. The case for propping up Greece to avoid the failure of Western banks is weaker than it was four years ago.

On the other hand, the strategic case for the Europeans trying to keep Greece within Europe has strengthened, as relations between Russia and the West have deteriorated, while at the same time Greece has developed a dialogue with Moscow. Greece has recently been invited by Russia to join the new BRICS development bank.

But countries such as Spain, Portugal and the Republic of Ireland, which took tough economic measures in 2010 and 2011 in return for bailouts from the EU, are just beginning to recover from deep economic recessions. They are strongly opposed to new European generosity toward Greece, for which they will have to contribute. Moreover, German Chancellor Angela Merkel, who has very sensitive political antennae, knows German taxpayers have also had enough of supporting Greece.

Meanwhile, many Greeks think spending cuts and tax increases have already gone too far. The Greek mood is defiant, and it will be difficult for the country to adopt its creditors' demands, like increases in value-added tax and more cuts in pension payments.

Meanwhile, the IMF and the European Central Bank will not soften their demands. Sixty percent of the capital available to the Greek banking system has been made available by the ECB. As the negotiations drag on, deposits continue to leave Greek banks, while the ECB will not provide more support. If help is not provided, the Greek banking system would collapse, and Greece would be forced to leave the euro and print its own currency, the drachma.

How can China respond to this worsening crisis in one of its strategic partners? Although Greece looks East as well as West, the country is part of the EU and, for the time being, part of the euro. Yet significant assistance of the kind provided by China to countries in Asia such as Pakistan would obviously be of huge benefit to the Greek economy and to the rest of southeast Europe. But a big increase in China's economic support of Greece would probably be viewed with deep suspicion by the Europeans and by the United States.

The perception of a larger Chinese role in Greece depends, as elsewhere in the world, on how China itself and its motives are perceived by the major Western powers. Would a larger Chinese involvement in Greece be seen by the West mainly as a Chinese grab for power in a strategically important country close to Eastern Europe and the Mediterranean? Or could it be viewed more positively, as providing vital support to a country of great historical and strategic importance to the West?

As China grows, its footprint expands to the entire world. The Greek situation won't be the last time China will have an opportunity to intervene, for general benefit, in a region far from its historic East Asian region of influence. The opportunity for China to become involved in the Greek tragedy reminds us that trust and understanding of China by the other major world powers will determine the success of China's evolution as a global power.

The author is a visiting professor at Guanghua School of Management, Peking University. The views do not necessarily reflect those of China Daily.

(China Daily European Weekly 06/26/2015 page13)