The first question to ask is; how long does a crisis have to last before it stops being a crisis and starts being simply the way things are? That must be the way the people of Greece are feeling round about now. As they ready themselves for another referendum on an election to vote down the government which is planning to back the austerity measures introduced by the last anti-austerity government (I may have paraphrased the situation slightly, but the reality is no less queasily surreal), they must think back to a ‘crisis’ which began back in 2009 and ask if it’s ever going to end.
It’s easy, of course, to sit on high, in the position of forex trader or foreign economist, and offer lectures to people deprived of the basics of life on exactly what they’ve done wrong, but the root of the problems in Greece, at least the problems which comprise this ‘crisis’, can be traced back to their decision to join the Euro and, indeed, the rest of Europe’s decision to let them in. It now seems glaringly obvious that the Greek economy was in no condition to take on board the strictures laid down by Northern European countries such as Germany (a country where, let us not forget, the words for ‘debt’ and ‘shame’ are one and the same), but that’s to take advantage of the wonderful gift of hindsight, a gift which would have seen quite a few less sub-prime mortgages handed out around the turn of the 21st century.
The point is that Greece is where it is now, with the threat of exit from the Euro either looming or diminishing, but never disappearing, with each set of late night, last ditch emergency talks. The first effect which all of this has upon the Euro must surely be to weaken its credibility as a stable and bankable currency. Greece might leave, others might follow and the chances of the UK ever taking the plunge have surely reduced from what they were (very small indeed) to something at the sub-atomic level. The ultimate effect will depend upon whether Greece stays in or leaves the currency, and even on this, experts are split. If Greece either leaves or is forced out then it will have to take its’ chances with a new currency and the uncertainty that might bring. The countries left behind in the Euro will have to pick up the pieces, which could land either of two ways.
Turmoil and disruption – this is never a good look for a currency, and one which will see speculators and traders backing stalwarts like Sterling and the dollar.
Domino effect – there is a fear that if Greece leaves, others (Portugal, Spain) might follow. This is counterbalanced by the fact that the problems in Greece were of a far larger scale than in any other country, although the pressure of the markets trying to sniff out the next ‘weak link’ could prove telling. The greater damage may well be reputational, since the feeling is that the EU desperately wants Greece to stay – if they don’t then it will be a failure of flexibility, negotiation and the very concept of a single currency.
Lack of lift off – if a Greek exit doesn’t see the fortunes of the Eurozone as a whole lift, having been freed from its Mediterranean anchor, the feeling will grow that the problem was as much the wider Eurozone itself as it was Greece, and that Greece was by no means alone with its failings.
Weak link – the removal of what is undoubtedly the weakest member of the Eurozone, economically speaking, will have the instant effect of making the remaining members stronger.
Political – the exit of Greece may put an end to the rise of populism throughout Europe, and in particular parties which pander to the idea that there must be an easy way out of the crisis. If Greece exits, it will be proof that there is no such easy way.
Strengthening – the immediate response to a Greek exit, in political terms, may well be a strengthening of the union in order to see off any of the perceived negative effects. It would be seen as more important than ever for the remaining countries to be seen standing shoulder to shoulder.