Murphy's Law: Arab Money And Fear Of the Turks Saves The Day

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November 1, 2010: Greece has finally worked out a deal to pay for the four Type 214 submarines it had bought from Germany. Greece will promptly pay $278 million to the German manufacturer, and turn over a majority (75.1 percent) interest in a Greek shipyard (that is building the other two Type 214s) to an Arab firm. The German manufacturer had invested heavily to upgrade that shipyard so that it could build the other submarines. In this case, the yard will continue building the other two subs, and German cooperation will continue.

Only a month ago, the Greeks were faced with having their Type 214 subs auctioned off to cover the $800 million they owned the German builder. Although the final deal had been in the works for over a year, the Greeks were unable to muster the fiscal and political capital to make it happen. Because of the current financial crises, the Greek government claimed that the cash was not available, and not likely to be for some time. But the Greeks finally worked out a deal that did not include an auction, and will receive one of the Type 214s within a month, and the other three boats as soon as work is done on them.

Late payment has not been the only problem with these subs. For the last four years, Greece and German submarine builder ThyssenKrupp have been arguing over the quality of German work on the Type 214 boats. But earlier this year, the Greeks finally agreed to the original deal, and declared the quality issues resolved. It was about time. But four years ago, when the first Type 214 arrived from Germany, the Greeks quickly declared that the boat suffered from 400 defects.

When the Germans first heard of the complaints, they thought it was politics. A new Greek government had just been installed, and it was common for the new officials to try and make the previous gang look bad. The Germans also expected that the Greeks were using this defect list to renegotiate the contract, and pay less than they had agreed to. The Germans eventually concluded that nearly all the 400 defects were bogus.

Finding that that all the claims were false or exaggerated, the Germans sued for breach of contract. The Greeks responded by refusing to accept the sub, which remained tied up in Germany. Then the Germans threatened to withdraw technical help for the Greek shipyard that was building the other three boats, and go to court to prevent the Greeks from using any of the German technology.

Two years ago, the Greeks offered to settle the dispute, but they didn't have the cash to make the required payments. That deal had the Greeks accepting the first sub, and then selling it. The Greeks still wouldn't admit that their defect list was a fraud. The Germans agreed to resume assisting the Greek shipyard, and withdraw its lawsuits. Greece promised to make required payments, which was not done.

It's believed that Greece's current financial problems (spending more than they promised the European Union that they would) was a major factor in all the contract problems over the last year. This debt problem has forced the government to cut way back on spending. That, plus the German threat to, in effect, shut down the Greek shipyard, and throw 1,400 people out of work, forced the government to back down on the crises it had created. But the cash was simply not there to pay for the subs, so other sources of funding were sought, and eventually found via the Arab partner.

Meanwhile, Greece has eight German Type 209 subs. These 1,100 ton boats entered service in the 1970s and are being kept in service via regular upgrades and refurbishment. The 214s (ultimately eight of them) were to replace the 209s. If that deal had actually died, the Greek submarine force would have just faded away over the next decade or so. Archrival Turkey has bought six Type 214s, with the first arriving in five years. The thought of the Turks having 214s, while the Greeks had none, may have been the real catalyst to sorting out this mess.

 

 


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