Europe Weighs the Costs Of Casting Greece Aside

Officials Debate the Financial and Strategic Consequences of a Greek Exit

By STEPHEN FIDLER

Updated Feb. 5, 2015 5:16 p.m. ET

How much does Greece matter to Europe? It’s a question being asked by European officials as the brinkmanship over the country’s bailout program intensifies.

The answer is important because it will help determine how far governments will go to accommodate the economic demands of new Greek Prime Minister Alexis Tsipras, and whether they will be willing to court an outcome that could lead Greece to leave the euro and possibly the European Union.

For Winston Churchill, Greece—“with its immortal glories,” as he said in his “Iron Curtain” speech in Fulton, Mo., in 1946—mattered for emotional and strategic reasons. As World War II drew to a close, he sent British troops to fight against Communist guerrillas to prevent the country from falling under Moscow’s domination.

When set against the three million Allied soldiers fighting on the Western front and the U.S. struggle against Japan, he wrote later, “The spasms of Greece may seem petty, but [the Greeks] stood at the nerve center of power, law and freedom in the Western world.”

It is the same combination of emotion and perceived strategic importance that has over the past 70 years led other European governments to ensure that Greece remained tied to the West and the EU.

Greece was waved into the bloc in 1981, after the fall of its military dictatorship, on the “facile claim that it was the Greeks who invented democracy and that you couldn’t have a European Union without the birthplace of democracy,” says Jonathan Eyal of the Royal United Services Institute, a defense and security think tank in London. Greece was ushered into the currency union two decades later, even though few of its partners believed its economic statistics could be taken seriously.

Greece has just 11 million people and its economy represents about 2% of eurozone gross domestic product. But, Mr. Eyal says, “The Greeks have always been able to capitalize on their claim to be more significant than their size and their economy warranted.”

In recent years, some policy makers—notably in Germany—have tired of this conceit. Before German Chancellor Angela Merkel closed down the debate in 2012, some German officials developed what others called the “ballast theory.” According to this, Greece’s indiscipline was threatening to sink the eurozone boat. If Greece was thrown over the side, the boat would float higher in the water.

At that time, what gave Berlin and others pause was the signal it would send. The eurozone, rather than a permanent fixture, would look like a marriage of convenience that could be joined and exited at will.

That would carry high costs for other eurozone states, since investors would demand higher interest rates to finance governments of vulnerable economies—rates that could rise prohibitively high whenever there was a whiff of financial crisis. That potential cost of a Greek exit remains, though analysts believe the immediate financial fallout would likely be more limited than in 2012.

Over the past year, however, another risk has emerged that may change the calculation: the possibility that Russian President Vladimir Putin , who has challenged Western norms by annexing Crimea and backing separatist rebels in Ukraine, could step into the void and gain a hold in a Greece spurned by its European neighbors.

Many Greeks are traditionally sympathetic to their fellow Orthodox Christians in Russia; perhaps Mr. Putin—who on Thursday invited Mr. Tsipras to Moscow in May—can pull Athens closer to his orbit.

In this view, Greece is “an aircraft carrier in the middle of the Mediterranean.” Losing it is “unthinkable.”

For others, while the financial consequences of Greece’s exit from the euro may be there, the strategic consequences are minimal. Sure, says Mr. Eyal, Greece would have “a nuisance value” if it were let go. But he says it is already a thorn in the side of its neighbors inside the EU, resisting settlements to disputes over Cyprus, Macedonia and other issues. The Greek political class has “never shown the solidarity that it is asking others now to show,” he says.

Whatever the truth, joining the euro has exposed the weaknesses of Greece’s political system, which is still managing to frustrate both its allies and its own people.

Greece, which introduced universal male suffrage in 1844, had democracy before the two other components that political scientist Francis Fukuyama has argued are essential to a modern political system: a strong state and the rule of law.

The result was Greece’s “clientelistic” political system—in which election winners deliver patronage to their friends and family—that remains a central feature even today.

One question European policy makers are asking is whether Mr. Tsipras represents a break to that clientelistic tradition, or whether he will be guided by the business-as-usual principle that “it’s our turn now.”

If the former, its eurozone partners may be more inclined to accommodate Greek requests provided the government signs up to meaningful reform. If the latter, they may eventually be inclined to take the risk of casting it adrift.

Write to Stephen Fidler at stephen.fidler@wsj.com