Last Days of Rome

Beware of Greeks Buying Ships

How Secret Greek Military Spending, and Cold War Thinking, Helped Push the Eurozone to the Brink of Disaster

In the final moments of Stanley Kubrick’s brilliant Cold War farce Dr. Strangelove, the American president and his military advisors are evacuating the war room, having bumbled with the Soviet Union into a full exchange of nuclear weapons that will destroy most life on earth. As they head to their subterranean bunker, the hawkish Gen. Turgidson (played by George C. Scott) has a brainstorm about the world survivors will emerge into a century later when the fallout dissipates.  

“I think we should look at this from the military point of view,” he says. “I mean, supposing the Russkies stash away some big bomb, see. When they come out in a hundred years they could take over!

Something similar appears to have happened in Greece with regard to its military budget. In spite of outward appearances that its age-old disputes with Turkey were on the mend, Greece apparently hid €8.7 billion in military spending between 1997 and 2003. This may not sound like Armageddon. But now, in part because of this kind of accounting, the European Union is facing the gravest financial crisis in its long history.

Ancient Feuds and Military Aid

Following the 1974 Turkish-Greek crisis over Cyprus – a dispute which remains unresolved to this day – the U.S. Congress instituted a special 7:10 ratio with regard to military aid to Greece and Turkey. At the time, both countries were ruled by military juntas, and the Soviet watched with glee as the nations which comprised NATO’s southern flank lunged at each other’s throats.

Crisis after crisis repeatedly brought the two to the brink of war – over Cyprus in the 1970s, a Turkish plan to drill for oil in the Aegean in the 1980s, and over disputed Aegean islands about every four to five years.

For these reasons, well into the 1990s the U.S. Congress insisted on maintaining the relative balance of power, ensured that for every $10 of aid that went to Turkey, $7 went to Greece.

Starting in the mid-1980s, the Reagan administration began arguing against this formula, citing Turkey’s much higher strategic value and downplaying the risks of an actual shooting war between two NATO allies. Congress refused to budge, citing repeated dog-fighting incidents between Greek and Turkish warplanes.

Ultimately, however, the 1991 Gulf War changed the game. With the Cold War newly over, the Greeks in line to join the (then)-European Community, Turkey’s strategic location and influence in many of the newly independent Soviet states prompted the U.S. to open the taps. The 7:10 ratio went by the wayside with little fanfare – except, apparently, in Greece.

Improving Relations, Dwindling Clout

The end of the Cold War vastly diminished Washington’s interest in this regional dispute, and while Turkey’s star rose, Greece’s own once powerful lobby in Washington lost its strategic argument and became just another advocate for the interests of a significant American immigrant group.

Perhaps not coincidentally, episodes of Greek-Turkish skirmishing also ended with the Cold War. Greece’s long quest to join the eurozone – denied in 1999, then accepted in 2001 – may also have played a role in moderating its behavior.

Additionally, the massive Turkish earthquake of 1999 appeared to mark a genuine turning point in Greek Turkish relations as Athens sent thousands of rescue workers to help and Greeks dug into their pockets to donate money for their neighbor’s reconstruction.

Certainly, many things did change for the better. Greece and Turkey have held real talks over Cyprus, though agreement remains difficult.

Both countries have made concessions toward minorities – Greece has a sizeable Turkish population in the Thrace region, a legacy of Ottoman control, who have been subject to discrimination; Turkey contains a dwindling Greek population – perhaps 2,500 or so – even after decades of repressive policies aimed at forcing them to emigrate.

Perhaps most surprisingly, the Greeks have become among the most vocal supporters of Turkey’s EU membership bid.

Enter Dr. Strangelovolopolous

But no one, it seems, told Greece’s military men. The generals went back to their barracks in 1974, but Greece has remained an outlier on military affairs within NATO – supporting Serbia, for instance, during the 1990s, and maintaining closer ties than most with Moscow.

For years – until 2004 – Greece also refused to open its books to the EU’s statistical unit, Eurostat, on the topic of defense spending, insisting the numbers were confidential.

As it turns out the Greek military was engaging in a major modernization prompted by fears of the U.S. largesse directed at Turkey since the early 1990s, and Turkey’s own exponentially higher GDP and population growth rates.

The Eurostat audit which uncovered the “underreporting” of Greece’s military spending in 2004 got very little press at the time. Certainly, the EU made little of it, something German and French taxpayers are coming to regret.

So it appears Greek defense spending bucked the downward trend of the 1990s as Athens ordered up a new class of warships (Standard-class frigates from Britain, Type 24 submarines from Germany), hovercraft and patrol boats (from Russia and Ukraine), and most recently, high-performance jet fighters (late model F-16s from the U.S.).

Until the financial crisis, plans to hold a competition for a next generation fighter – probably between the Eurofighter, the American built F/A-18 and F-35, and Sweden’s JAS-39 Grippen – were in high gear. (Russian interests had been promoting Sukhoi’s latest offerings, as well).

To say the least, such military luxuries appear somewhat beyond Greek means at the moment. Greeks should look to NATO, the EU and the United States to step up efforts mediate an end to the Aegean disputes.

Most of all, now that the jig is up on their creative accounting, they should think very seriously about the relationship they want with their neighbor. Turkey, of late, has been mentioned as a possible addition to the “BRICs” – Brazil, Russia, India and China – nations for whom the 21st century appears to hold great promise. Greece, on the other hand, looks more and more the way the old Ottoman Empire did at the start of the 20th century: the sick man of Europe.

All rights reserved, Roubini Global Economics, LLC. Opinions expressed on RGE EconoMonitors are those of individual analysts and may or may not express RGE’s own consensus view. RGE is not a certified investment advisory service and aims to create an intellectual framework for informed financial decisions by its clients.

3 Responses to “Beware of Greeks Buying Ships”

GuestFebruary 25th, 2010 at 4:36 am

Mr. Moran writes with journalistic flare but lack of facts. Does this kind of sloppy, sensational trivia really belong on the RGE monitor?There are fundamental geopolitical differences between Greece and Turkey that warrant Greek military spending, albeit the Greek government manages its military badly and a lot of the spending is misplaced. Turkey has made open threats of war towards Greece and regularly invades Greek airspace compromising Greek sovereignty. Turkey is also a major contributor to illegal immigration into Greece and has not kept its obligations with FRONTEX.Further Turkey is politically unstable with an Islamist Government openly flirting with repressive regimes like Iran, Syria and their terrorist proxies like HAMAS. There is considerable internal conflict in Turkey as the Islamists are clamping down on the Press and opposition, using the West as leverage to consolidate their power and annihilate their enemies.The EU was well aware of Greek military spending. The issues were openly discussed in the Greek press at the time and have been reviewed periodically. The EU accepted Greece into the Euro zone for political reasons and there has been an open culture of corruption between Brussels and Athens for years. The Siemens trials in Germany, which involve (among other issues) bribery charges with the Greek government are a good example. Much of EU indignation is feigned and disingenuous to cover up their own responsibilities and internal corruption.As Nouriel and Simon have written, the problems of Greece not only concern the failure of Greek governments to manage their financial affairs responsibly, but also unsustainable policies within the Euro zone concerning all southern European countries. Milton Friedman had questioned the structure of the Euro from inception and this crisis is reopening many of his astute observations of the time.Mr. Moran appears to lack the intellect to grasp these complex economic and geopolitical issues. Very disappointing!

GuestFebruary 25th, 2010 at 2:46 pm

I think Moran’s raising the issue of Greek military spending in light of the economic situation raises an important issue – sound decision making. Even if the IMF or ECB bailout Greece, there is still the fiscal and competitiveness issues that linger.

arpit patelOctober 8th, 2019 at 6:05 am

“I think we should look at this from the military point of view,” he says. “I mean, supposing the Russkies stash away some big bomb, see Shop Now When they come out in a hundred years they could take over!