If Greece exits the euro, what happens to the US base Souda Bay?
June 24, 2015
There has been widespread concern about the consequences for global markets if Greece defaults on its debts and is forced to give up the euro. But how would a tiny American naval base on the island of Crete fare?
The challenges for the base of a Greek exit from the euro would be similar to those of many American companies watching developments in the country, say security and financial consultants.
Greece is in a series of last-minute negotiations with creditors over a deal to avert a looming default on bailout loans from recent years.
Even if a deal is struck by an end-of-the-month deadline, most economists believe this would not solve the country’s underlining financial problems, and a new crisis down the road is likely.
“The potential for chaos and a huge amount of uncertainty and instability is very significant,” Marianna Vintiadis, the managing director for security consultant firm Kroll’s Southern European office, said of a possible Greek default.
Like many overseas American bases, U.S. Naval Activity Souda Bay has hundreds of local employees and contracts with local businesses. American employees live on the local economy and make purchases in euros.
Navy public affairs officials declined to discuss base planning around a possible Greek default, saying they were under strict instructions to refer all matters to the State Department — including unclassified figures such as the number of base employees or the base budget.
A State Department spokeswoman referred to previous White House statements on the issue.
In the event of a default, Greece is expected to drop the euro and replace it with a local currency. Stabilizing that currency, which is expected to immediately fall in value to the euro, would take time, said Naresh Aggarwal, a treasury consultant with PwC.
Because the Greek government will likely close local banks to prevent people from emptying their accounts, businesses typically want more cash at their disposal to make payroll and pay for services.
“What you would want is not to be holding local currency,” Aggarwal said of foreign businesses in Greece. “You would want a foreign currency, whether it’s euros, pound sterling, Swiss francs or U.S. dollars. Or you would want to hold tangible assets.”
For Navy personnel, who have access to U.S. dollars through on-base institutions like Community Bank and Navy Federal Credit Union, access to cash shouldn’t be a problem while a new Greek currency is unavailable.
Whether the base would have an issue paying local employees is less clear. Of Souda Bay’s roughly 900 military and civilian personnel, about 400 are local civilians, according to a military official familiar with the base. Yet its payroll has in the past been made through the Greek government, which then pays the employees, a scheme that could complicate payment in an alternative currency.
Another uncertainty is whether contracts now paid in euros could be switched to the new currency. The base might also worry about the viability of some local service providers, especially smaller businesses that could take a financial hit from the loss of the euro.
“You need to make sure the first group of suppliers you have is resilient,” Aggarwal said of overseas businesses.
That issue, too, could be defused by the fact that the American base is located inside a Hellenic Air Force base, meaning some infrastructure is maintained by the Greek Defense Ministry instead of locals contracted by the U.S.
Social unrest is another concern for foreign businesses operating in Greece, both Aggarwal and Vintiadis agreed. So far, Athens has been the scene of most of the protests and violence surrounding debt negotiations. Aggarwal said that, as symbols of capitalism, larger American companies can become targets in times of financial unrest.
But Vintiadis said the current situation is different because it doesn’t directly involve Americans. Greece’s creditors are European, and Germany in particular has become the target of popular frustration. The U.S. has encouraged any resolution that would keep Greece within the eurozone.
“In this case, would there be anything specifically targeted at Americans? I don’t see it,” she said. “This is not that sort of a crisis; this is not that sort of a problem.”
The likelihood that significant unrest would spread outside Athens depends on how long the Greek government needs to stabilize the currency and return the economy to a sense of normalcy, she added. “What we have at the moment is a situation in flux,” Vintiadis said. “When you’re in a situation in flux, you need to be careful. Things are changing every day.”