After close to two years of economic turmoil Greece is now facing default. Greece's credit rating has been cut to junk bond level and is the lowest in the European Union. After providing a $115 billion bailout to Greece in 2010, the European Central Bank is meeting to decide whether to cobble together another aid package. Objections are growing across Europe, and with sovereign debt of close to half a trillion dollars, equaling over 140 percent of Greece's Gross Domestic Product, few options besides default appear possible. Greek default will have significant economic, political and social implications for Israel, most of them negative. At the end of the crisis, however, are a few hopeful possibilities for which Israelis, and Greeks, must be ready.

Default will be catastrophic for Greece itself. Interest rates on Greek bonds are already above 25 percent and default will send that rate even higher, making it nearly impossible for the Greek government to borrow on the international market. Default would also entail the insolvency of all Greek banks, repudiation of the Euro, bank nationalization and the revaluing of all Greek debt into a new local currency, which would immediately be devalued. It is estimated that investors will lose at least 30 to 50 percent of their money on Greek bonds. And as European banks and the European Central Bank (ECB) hold 60 percent of Greek debt, the impact across the continent would be immense.

Default would precipitate more traumatic effects from even more heavily indebted Eurozone countries, namely Ireland, Spain and Portugal. Irish debt stands at almost $153 billion, while that of Spain is an astonishing $700 billion. And stalking the EU is the looming issue of Italian finances, where public debt is well over $2 trillion. Greek default alone would make the ECB insolvent, and its German and French leaders would then have to decide whether (and how) to recapitalize. Additional bailouts would be politically and economically impractical, if not impossible. The Euro, the European banking system, and the EU itself, could be in jeopardy.

Electoral results from other parts of Europe show that rapid shifts of governing parties should be expected. For example, Chancellor Angela Merkel's Christian Democrats and her center right coalition were shocked by a strong showing from Greens, even in industrial areas of Germany. One result has been the pledge to shut all of Germany's nuclear power facilities in the next ten years. But in Spain, Prime Minister Jose Luis Rodriguez Zapatero's Socialist Workers' Party was trounced by the center-right Popular Party.

A recent poll showed that 77 percent of Greeks had no faith in the leadership of Prime Minister Georgios Papandreou of the center-left PASOK party to resolve the economic crisis. But a new Greek government is not out of the question, even before default. At present, the center-right New Democracy party is rejecting calls for new elections, even as it opposes the Papandreou government's attempts to seek new European financing. But the domestic situation in Greece may make new elections inevitable. Capital is fleeing Greece, and Greek citizens have already shown little appetite for additional austerity, as demanded by the European Union, or for privatization of government owned industries, reduced spending and increased taxes. Street protests and strikes have intensified. Default will inevitably produce bank runs and bring simmering social unrest to a boil.

Israel's exposure to Greek sovereign debt is minimal. But the Greek crisis comes at a time when economic and defense cooperation are expanding rapidly. Israeli tourism to Greece has increased tremendously in the wake of the collapse of the relationship with Turkey. In 2009, some 100,000 Israelis visited Greece, a figure that rose to 250,000 in 2010. In February, a delegation of American Jewish leaders visited Greece and came away touting investment opportunities; their Greek counterparts praised the potential for Israeli technology. Israel exports close to $300 million in goods to Greece annually and the figure has been steadily rising.

Thanks to its dependence on Arab oil, Greece has long been hostile to Israel and full diplomatic relations with Israel were only established in 1990. A defense cooperation agreement was signed with Israel in 1994 but relations took off only in recent years. In 2006, then Israeli President Moshe Katsav made the first-ever official visit to Greece. And in 2010, Prime Minister Papandreou and Israeli Prime Minister Benjamin Netanyahu exchanged official visits. The changing nature of Turkey has been key to pushing Israel and Greece closer together.

Under the AKP party a slow motion Islamist takeover of Turkey has progressed, and Turkish defense cooperation with Israel has been dramatically reduced. The decisive break came in 2009 when Turkey banned Israel from the annual Anatolian Eagle joint air force exercises. This deprived Israel from training with NATO members in broad Turkish airspace. In response, however, Israeli-Greek military cooperation has rapidly increased. Several joint air force exercises were held in 2008 and 2010 and reports indicate that joint naval exercises are planned. Large sales of Israeli military equipment to Greece are also reported to be in the works.

Greek default would put all this progress at risk. A 25 percent cut in the Greek defense budget was announced in 2010 and more are probable. Greek purchases of Israeli equipment and opportunities for joint training will almost certainly be reduced. If Greek social unrest erupts, tourism will be disrupted, including from Israel. While Greek politicians and business leaders have been at the forefront of enlarging relations with Israel, Greek anti-semitism, always a nasty undercurrent, has been rising.

In recent months, a synagogue in Crete was burned, twice, and other synagogues and cemeteries have been vandalized, along with a Holocaust memorial in Athens. Public statements of anti-semites, like composer Mikis Theodorakis, are infamous and increasingly focused on the current Greek crisis. Theodorakis has said that, "Everything that happens today in the world has to do with the Zionists." He also said: "American Jews are behind the world economic crisis that has hit Greece." A neo-Nazi party, Popular Orthodox Alarm (LAOS), has fifteen seats in the Greek parliament. One of its cofounders, Konstantinos Plevris, was eventually acquitted of "inciting racial hatred" against Jews through his anti-semitic and Holocaust praising book Jews: The Whole Truth. Orthodox Christianity is deeply engrained in Greek society, and there has been a cultivated ignorance of both the historic presence of Jews in Greece, and the Holocaust in Greece. All these have kept pushback from Greek officials or Greek society as a whole against recent anti-semitism to a minimum.

Any assessment of the potential for enhanced Israeli-Greek relations must be seen through the twin prisms of the probable Greek default and the undeniable reality of Greek anti-semitism. The same may be said for other European countries facing economic collapse. A recent study has shown that Spain is the most anti-semitic country in Europe. Ireland's rampant anti-Israel bias is another phenomenon that will likely increase with economic collapse. Center-right governments, where they are elected, will not have combating anti-semitism as a priority, even if they are favorably inclined toward Israel. Center-left governments, like Zapatero's, have been shown to encourage anti-Israel bias and alliances with Arab states.

But the likelihood that Israel will become a major natural gas exporter in the next decade changes the Mediterranean equation, at least partially. Developing energy ties with Greece and other countries offers Israel the opportunity to build better relations at a number of levels through intensive and creative diplomacy. In the absence of developed scientific or human capital, the Arab-Muslim world gained immense influence in Europe by playing the oil card and capitalizing on recessed anti-semitism. By deploying its abundant scientific or human capital, as well as carefully wielding power as an energy exporter, Israel may have the chance to eventually improve its relations with Mediterranean countries.

In the meantime, however, there is little Israel can do to change the downward spiral of Greece. Israel should be preparing for sudden downturns in relations as Greece and other EU states go through social and economic traumas. Preparing to improve relations on the other side of default is equally necessary.

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