In my previous post, I wrote about the Greek crisis, and wondered what will happen when the Greeks vote in the forthcoming referendum. It seems very unlikely that they will vote in favour of the new bail-out package.
What will happen then?
One of my blog’s readers, Cassandra Parkin, asked, “Are we doomed?”
As things stand, Chancellor Merkel and President Sarkozy will be meeting the Greek Prime Minister this afternoon in Cannes. This will not be a cheerful affair. President Sarkozy has publicly said that the referendum has come as a surprise to him. Chancellor Merkel, who is effectively Greece’s paymaster, is not famed for her sense of humour.
If the referendum goes ahead and the vote is No, there is a strong possibility of a disorderly default by Greece on its debts and a return to the drachma.
The knock-on effects would be swift. Italy and possibly Spain are likely to have to default as well. Portugal would probably be next, but Ireland might be safe.
The effect on the UK economy would be significant because 50% of our exports go to the EU, so, even though the UK is outside the Eurozone, the Greek default would trigger a series of events which would have a strongly deflationary effect on this side of the Channel.
Civilisations fail when people lose confidence. If you were a Roman and were thinking about building a bigger, better Colosseum, you’d delay building it indefinitely if you’d heard that the Visigoths were about to pay you a visit. Uncertainty kills civilisations.
Cassandra also wondered yesterday at the irony contained in the Greek predicament.
She wrote, “I suppose there’s a nice irony that the Greeks both invented, and are now destroying, modern civilisation as we know it.”