Mario Draghi sends warning shot that Greek threats to unleash mayhem will not give way to leniency
This article originally appeared in The Telegraph
The European Central Bank has warned that a rupture of monetary union and Greek exit from the euro could have dramatic consequences, but insisted that it has enough powerful weapons to avert contagion.
Mario Draghi, the ECB's president, said it would be far better for everybody if Greece recovers within EMU but made it clear that the currency bloc is no longer vulnerable to the immediate chain-reaction seen in earlier phases of the debt crisis.
This sends an implicit message to the radical-Left Syriza government in Athens that it cannot hope to secure better terms from EMU creditors by threatening to unleash mayhem.
"We have enough instruments at this point of time, the OMT (bond-buying plan), QE, and so on, which though designed for other purposes could certainly be used in a crisis if needed," said Mr Draghi, speaking after a series of tense meetings at the International Monetary Fund.
"We are better equipped than we were in 2012, 2011."
In effect, the ECB now has the license to act as a full lender-of-last-resort and mop up the bond markets of Portugal, Spain, or Italy, preventing yields from rising.
Yet Syriza appears to be countering such pressure with its own foreign policy gambits as events move with electrifying speed in Athens.
Greek sources have told The Telegraph that Syriza may sign a deal with Russia for Gazprom's "Turkish Stream" pipeline project as soon as next week, unlocking as much as €3bn to €5bn in advance funding.
This confirms a report in Germany's Spiegel magazine, initially denied by both the Russian and Greek governments. It is understood that the deal is being managed by Panagiotis Lafazanis, Greece's energy minister and head of Syriza's militant Left Platform, a figure with long-standing ties to Moscow.
Mr Lafazanis warned defiantly on Saturday that Syriza would not "betray the people's mandate" even if this means a full-blown clash with the creditor powers.
"There can't be a deal with neo-liberal, neo-colonial powers that rule the EU and the IMF unless Greece really threatens their deep economic and geo-strategic interests. We still do not know our own strength," he told Greek television.
"Several of the so-called partners and certainly some in the IMF want to denigrate and humiliate our government, blackmailing us to implement measures against the working classes," added Mr Lafazanis.
"There will not be the slightest privatisation in the country, particularly of strategic sectors of the economy."
Splintered power within the Syriza movement makes it hard to judge whether this is now the official policy of the government, but sources in Athens say that premier Alexis Tsipras may be willing to take the fateful step of embracing the Kremlin after running into a brick wall in Brussels.
Mr Draghi denied that the ECB is examining the possibility of a parallel currency in Greece and said the Bank is still working on the assumption that the worst can be avoided.
"I don't want even to contemplate such an event. The Greek leaders have repeatedly stated that they intend to honour their commitments," he said.
"We all want Greece to succeed. The answer is in the hands of the Greek government...Much more work is needed now, and it is urgent."
Greece's finance minister Yanis Varoufakis said on Thursday that his government was facing "liquidity asphyxiation" and may be forced into default unless the creditor powers give ground.
Athens had not at that point found enough fresh funds to cover a €1.7bn bill for salaries and pensions at the end of the month, and then to repay the IMF €1bn early next month.
Bridging finance from the Kremlin would transform the situation, allowing Greece to avert a disastrous clash with the IMF. Syriza could then confine its dispute to EMU creditors and particularly to the ECB, the body deemed enemy number one by embittered Syriza ministers.
The drama has escalated into a bizarre form of brinkmanship for the highest stakes, with Greece effectively playing off Moscow, Brussels, and Washington, against each other in three-way geo-strategic poker.
Mr Varoufakis won words of sympathy from President Barack Obama at a meeting in the White House but it is not yet clear whether Syriza can expect much more than a comfort blanket from the US.
Mr Obama said later that he had told Mr Tspiras that he would back some flexibility rather than a policy that is "just squeezing blood from a stone" but only if the Greek deliver on reforms.
The Kremlin appears to have outbid the White House in the latest round. Brussels has yet to make any bid at all.