How could Greece’s economy, which makes up only 2% of the Eurozone, potentially bring the whole house of cards crashing down? It is down to what the jittery markets make of it all. If they believe that the new bailout’s austerity demands (the second tranche) are unenforceable on a people who are now close to ungovernable, then they will panic, and a panicking bond market cannot be resisted. Indeed, we British had firsthand experience of this on ‘Black Wednesday’. And besides, the Greeks don’t have the stomach for more austerity: they would rather default on their debts and tell north Europe to get stuffed; they see only a future of unending misery as things stand.
As for the still fragile and barely recovering banks, there would inevitably be huge shockwaves all over again. But it’s the thought of a domino eftect on the other tottering economies of south Europe (Britain in extremis will save Ireland from going under) which is the stuff of sleepless nights. No body (neither the ECB nor IMF) can raise the sort of money needed to save the likes of Spain or Italy: it is truly a doomsday scenario which, amazingly, has got even China and India thinking they might have to step in.
The Euro is going to have to go back to the format which it originally drafted; that’s to say that only economies which can meet the five strict criteria laid down can be members. Alas, it was the failure to adhere to these requirements and the mad rush to admit anybody and everybody – and all the fudging that took place besides – which has led to the present situation. In that sense, north Europe has only itself to blame for not insisting on admission rules being sacrosanct. It is perfectly understandable that the hardworking, tax-paying, late-retiring North resents the happy-go-lucky, tax-avoiding and lets-play-the-Euro-system-with-its-cheap-loans South, which told a string of porkies about its indebtedness and then, to cap it all, wants to put its feet up early. But the South did only what most would do in the circumstances, given half a chance. Any thinking person could have seen it coming.
Watch this space!