1. (U) On March 15, the Greek Foreign Affairs and Defense
cabinet committee ("KYSEA") decided not to exercise an option
to augment its July 2005 decision to acquire 30 F-16 Block 52
aircraft (reftel) by an additional 10 planes. Doing so would
have cost USD 536 million (i.e., USD 39.8 million per plane
for the additional ten), but would have reduced the per plane
cost for all 40 planes from USD 44.9 million to USD 43.6
million. In comments to the press immediately after the
announcement, new MOD Meimarakis said the decision was based
on "everything," not just economics. Following up on
Meimarakis's comments, government spokesman Roussopoulos told
reporters that Greece needed a total of 60 new aircraft to
maintain the balance of power in the region -- the 30 F-16s
under the original LOA and an additional 30 (yet
unidentified) "fourth generation" fighters. The spokesman
referred several times to the need to look after the
interests of Greek taxpayers at a time of tight budgets.
Asked whether the next contract would go to Eurofighter,
Roussopoulos said KYSEA had not begun to consider the matter.



2. (C) Press reports and Lockheed Martin contacts have said
that newly-appointed FM Bakoyannis fought hard for the F-16,
but was overruled by PM Karamanlis. Former FM Molyviatis,
while admitting that he had not been involved in the
decision, told Ambassador March 15 that he believed it was
motivated primarily by a feeling that Greece had to "get in
touch with the European Union common defense." Greece needed
to be prepared to buy European, even if doing so was more
expensive, he said. Working-level officials in the Hellenic
Air Force attributed the decision to economics. The EU
recently praised Greek efforts to bring its budget in line,
they said, but defense acquisition budgets were extremely
tight.



3. (U) Most local press linked the decision to the ongoing
controversy over allegations that the United States was
behind the wiretapping of senior government officials.
Pro-opposition "To Vima" noted the awkwardness the government
would have if it tried to make this case to the public, even
informally, however, noting that the Prime Minister was aware
of the bugging when his government signed the original LOA.
Several papers call the move a sign that the government will
turn to Europe for its next aircraft buy and will look to
purchase a "modern" plane instead of the "outdated" F-16.



4. (C) The fact that the government has decided against the
additional planes does not remove the need to amend the
original LOA. To reduce the per plane price of the first 30
F-16s, the government omitted key items -- such as spares,
armaments, a reconnaissance system, and delivery -- from the
original LOA. To avoid significant additional costs, Greece
needs to sign an amendment to the original LOA by early
summer, a deadline the government will need to scramble to
meet.

Comment


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5. (C) Commercial and political pressure on Greece from
Eurofighter countries has been strong, a factor which weighed
heavily on this decision, as has the general Greek popular
desire to maintain a pro-European identity. That said, the
widely trumpeted allegations that the United States was
involved in the wiretapping of senior Greek officials created
an environment in which it would have been extremely
difficult to approve the additional F-16s. Ultimately, the
Prime Minister appears to have calculated that the economic
and military logic of increasing the Greek F-16 fleet at this
time were outweighed by the political risks of doing so. We
have by no means conceded the next fighter sale to the
Europeans, and are marshalling the strong economic, military,
and political arguments in favor of American competitors.
Ries