• The Hellenic Navy's Type 209 S-118 "Okeanos".
    The Hellenic Navy's Type 209 S-118 "Okeanos".
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As Australia lurches unsteadily towards acquisition of new submarines, it's instructive and entertaining to consider another submarine deal on the other side of the world.

A Special Correspondent | Canberra

That was Greece's decision to buy new German Type 214 subs, a process launched in 1998 and which has so far resulted in delivery of no operational vessels. Two may actually be commissioned sometime this year, or next.

This disastrous project helped sink Greece, materially contributing to the nation's perilous and ongoing financial plight, which in turn flowed through into the global financial system.

A number of Greek officials plus some others seem likely to spend time in the slammer for both providing and accepting eye-watering sums of cash to facilitate deals which Greece couldn't afford. Already former defence minister Akis Tsochadzopoulos is serving 20 years.

This has no bearing on Australia's procurement of new submarines, except in one area.


"TKMS surmised that Greece was seeking to renegotiate for a cheaper deal."


The vendor was German shipbuilder Howaldtswerke-Deutsche Werft (HDW), now ThyssenKrupp Marine Systems (TKMS), one of the three contenders bidding to replace Australia's ageing Collins boats.

Greece's desire for new subs stemmed from its longstanding rivalry with Turkey. Australians who get along well with both nations find this animosity curious - why can't neighbours just work at being friends.

Yet for Greece and Turkey, this is very real and has resulted in epic defence spending on both sides of the Aegean.

This really arced up following Turkey's 1974 invasion of Cyprus but the decision to modernise Greece's submarine fleet stemmed from the more recent Imia/Kardak crisis, sparked when a Turkish cargo ship ran aground on an uninhabited
Aegean islet.

Turned out Greek maps showed this as Greek territory while Turkish maps showed it as Turkish. Visiting parties from both sides successively raised their own flag and ripped down the other side's. This farce went worryingly close to turning into a full-on shooting war and in the aftermath Greece embarked on a 10-year US$17 billion defence modernisation program.

Greece was already a repeat customer of HDW, having acquired eight Type 209s during the 1970s.

HDW/TKMS has certainly done rather well from tensions in this part of the world, selling Turkey 14 Type 209s which are now being replaced by six Type 214s.

Under the complex agreement, HDW would build the first new boat at its yard in Kiel and the rest at Hellenic Shipyards in Skaramangas, Greece, acquired by HDW in 2002. At that time, the deal expanded to include modernisation of three of the older 209s at the Skaramangas yard. This pushed the deal close to three billion Euros.

At the same time Greece was buying plenty of other new military kit including aircraft, warships, missiles and tanks, most funded with borrowed money. One estimated approached US$70 billion of spending in a decade.


"Last June Greece launched a seven billion Euro compensation claim against TKMS through the International Court of Arbitration."


Knowing what we know now, this was never going to end well. Plenty of commentators have highlighted the curious irony that Germany greatly benefited from Greek profligacy and is now the nation carrying most of the bailout burden. It's also the most stern in demanding Greece mend its wastrel ways.

It wasn't just Germany - the US, France, Sweden and Russia were also lining up to flog weapons to Athens.
In Greece, there was occasional doubts expressed about all this unnecessary defence spending at a time when the government was cutting pensions and public sector wages.

Greece's financial situation was increasingly perilous and it had to fiddle the books to gain entry to the eurozone in 2001. That was partly achieved by post-dating accounting for the submarine deal to time of delivery.

This conveniently saddled Greece's incoming New Democracy government with fresh debt. They retaliated by backdating the debt, blowing out the deficits of the previous Socialist government. How can any nation possible run its finances in this manner, you might well wonder.
But there's more. With so many arms companies vying to do deals, Greece's already well-established predilection for graft and corruption reached new heights.

Vast sums changed hands. The New York Times tells the story of one mid-level defence official who amassed US$19 million, not because he could approve acquisitions but because he had the power to stop them.

TKMS now denies any part in this and its 2005 acquisition of HDW post-dates the worst of this misconduct. The same may not necessarily be said for some partner firms in the subs and shipyard deal.

In 2006, the Greek navy inspected the first of its new Type 214s, the one produced in Kiel, and came up with a list of some 400 defects including leaks, excessive noise and gross instability when cruising on the surface.

Horrified at this slight on their technological expertise, the Germans rushed to investigate and conduct repairs. Although similar to earlier Type 209 and 212 boats, the 214 did feature some new technology. They eventually concluded that all the Greek claims were false or exaggerated.

TKMS surmised that Greece was seeking to renegotiate for a cheaper deal. There followed four years of argument which culminated in 2009 with TKMS terminating the contract with arrears of more than 500 million Euros. Germany threatened to withdraw technical help from boats under construction in Greece and to launch legal action to stop Greece using their technology.

That left Greece with unfinished submarines and 1,400 shipyard workers at its Skaramangas yard with diminishing job prospects. Somewhat chastened, Greece agreed to settle, to pay up and also to buy two more Type 214s. Yes really. Probably fortunately for all involved, the deal for the two extra subs was canned in 2011.

TKMS also managed to offload 75 per cent of the shipyard to an Abu Dhabi firm.

Yet this isn't over - last June Greece launched a seven billion Euro compensation claim against TKMS through the International Court of Arbitration, alleging the dud sub deal compromised their strategic position and undermined their position in NATO. Most everyone else saw this as an attempt to shift blame for their own massive over-spending.

Should TKMS win the deal to build Australia's new submarines, they will likely find us very easy customers indeed.
All the politics in Australia's new submarine project, all the criticism of the procurement process and all the technical challenges ahead will be as nothing compared to the odyssey of the Greek submarine deal.

 

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