Greek default, Euro collapse?

Last year, Germany’s Chancellor Angela Merkel warned: “Nobody should believe that another half-century of peace in Europe is a given. If the euro collapses, Europe collapses. That can’t happen.”

Last year, Germany’s Chancellor Angela Merkel warned: “Nobody should believe that another half-century of peace in Europe is a given. If the euro collapses, Europe collapses. That can’t happen.”

But there is now a risk that the euro, the 10-year-old common European currency, might indeed collapse. The trigger could turn out to be last weekend’s election in Greece.

New Democracy and PASOK, the centre-right and centre-left parties that have alternated in power since democracy returned to Greece in 1974, were abandoned by voters in revolt against the savage austerity measures that those parties had accepted in order to keep the country in the euro. The beneficiaries were radical parties of the extreme right and left.

Most shocking was the rise of the neo-fascist Golden Dawn party. Its shaven-headed street-fighters give the Nazi salute and systematically attack immigrants on the streets — and it got seven per cent of the vote. Golden Dawn, together with two other ultra-nationalist parties that are equally hostile to immigrants, the euro and indeed the European Union itself, got the votes of one Greek in five.

Even more Greeks backed the hard-left parties that also reject the deal with the EU and the International Monetary Fund that gave Athens enough money (174 billion euros — $225 billion) to go on paying its immense debts. The price was brutal cuts in domestic spending in Greece, and the voters revolted against it.

Greek incomes have fallen sharply and one-quarter of the workforce is unemployed. It’s not a recession in Greece, it’s a full-blown depression, and Greek voters don’t want to hear about how massive foreign borrowing and corruption at home got them into this mess. They just want it to stop.

The main target for their ire is the deal that forced this austerity on Greece, and the chief victims have been the two traditionally dominant centrist parties that signed it. Between them, three years ago, they got almost 80 per cent of the vote. This time, they got just over 30 per cent. The missing 50 per cent mostly went to parties of the extreme right or radical left that reject the deal.

Those parties are too far apart on other issues to form a government in Athens with majority support in parliament, so there will probably be another election in June. If no coalition that will abide by the deal comes out of that election, then the EU will halt its financial aid to Greece — and when the next big payment on the country’s debt falls due at the end of June, Greece will default.

This raises two questions:

What will happen to Greece if it defaults on its debts and crashes out of the euro?

More importantly, what will then happen to the common currency, and to the European Union itself?

Countries that default on their debts have a very hard time. When Argentina defaulted in 2001, there was a 60 per cent fall in domestic consumption. Bank accounts were frozen, supermarkets emptied, and imported goods disappeared from the market. Inflation soared, jobs disappeared, and by 2003 more than half the population was living below the poverty line.

On the other hand, Greece is experiencing a good deal of this misery already. Unemployment is as bad as Argentina’s was at its worst. But in a few years, freed from its burden of insupportable debt, Argentina’s economy took off. Foreign banks started lending to it again, and for nine years now its GDP has grown at around eight per cent a year.

Many Greek voters think they can renegotiate the deal with the EU and stay in the euro. That is almost certainly untrue.

But in the end default may turn out to be better for them than staying in the euro and suffering endless austerity while trying to pay off an impossible load of debt.

The bigger question is: What happens to the euro if Greece leaves?

The common currency was conceived as a vehicle for achieving the “ever closer union” that most EU politicians used to orate about, but that was putting the cart before the horse. Without a single authority that can enforce the necessary fiscal and budgetary disciplines, such a currency is bound to fail.

Last Monday, Jacques Attali, the former adviser to the late French president Francois Mitterand, said that the euro will not last five more years “unless there is a single European state.” He’s probably right, but there is obviously not going to be a single European state in five years’ time.

Therefore, by Attali’s own logic, the euro as we know it is doomed. But Angela Merkel is probably wrong: that is unlikely to spell the end of the European Union itself. The EU survived perfectly well for 40 years without a single currency.

The Greeks will probably be using new drachmas before long. The Spanish may also be back to pesetas and the Italians to liras before we are much older. Perhaps the euro will survive as the common currency of the rich and efficient economies of northern Europe, and perhaps not. But the demise of the euro would not mean the end of the EU or of peace in Europe.

Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Asymptomatic testing will now be available for "priority groups" who are most likely to spread the COVID-19 virus to vulnerable or at-risk populations. File photo by THE CANADIAN PRESS
Marcus Golczyk, with Taco Monster, hands food to a customer during Food Truck Drive and Dash in the Westerner Park parking lot in Red Deer Friday afternoon. The drive-thru event will run every Thursday from 4-7 p.m. and Friday from 11 a.m. to 2 p.m. through June. Photo by SEAN MCINTOSH/Advocate staff
Food Truck Fridays, Food Truck Drive and Dash return in Red Deer

Red Deerians are able to take in a drive-thru food truck experience… Continue reading

Don and Gloria Moore, of Red Deer, are set to celebrate their 70th anniversary later this month. (Contributed photo)
Red Deer couple to celebrate 70th anniversary

Red Deer couple Don and Gloria Moore are set to celebrate their… Continue reading

Chris Scott, owner of The Whistle Stop Cafe, was put in handcuffs after an anti-restriction protest Saturday in the parking lot of the business. (Screenshot via The Whistle Stop Facebook page)
UPDATE: Central Alberta cafe owner arrested after anti-restriction protest

The owner of a central Alberta cafe, which was the site of… Continue reading

Alberta has 1,910 active cases of COVID-19 as of Wednesday. Red Deer is reporting five active cases, with 108 recovered. (File photo)
Red Deer now has 911 active COVID-19 cases

Central zone has 2,917 active cases

FILE - A firefighter wears a mask as he drives his truck. THE CANADIAN PRESS/Jonathan Hayward, File
VIDEO: Flames rip through Edmonton-area seniors complex, but no fatalities

ST. ALBERT, Alta. — Fire has destroyed part of a retirement complex… Continue reading

Quebec Premier Francois Legault chairs a premiers virtual news conference as premiers John Horgan, B.C., Jason Kenney, Alberta, and Scott Moe, Saskatchewan, are seen onscreen, Thursday, March 4, 2021 in Montreal. THE CANADIAN PRESS/Ryan Remiorz
Several provinces bring in new restrictions as high COVID-19 case numbers persist

Several provinces are gearing up to tighten public health measures once again… Continue reading

Members of the RCAF take part in a Royal Canadian Air Force change of command ceremony in Ottawa on Friday, May 4, 2018. The Royal Canadian Air Force is hoping Canada will open its doors to military pilots from other countries as it seeks to address a longstanding shortage of experienced aviators. THE CANADIAN PRESS/ Patrick Doyle
RCAF turns to foreign pilots to help with shortage as commercial aviators stay away

OTTAWA — The Royal Canadian Air Force is hoping Canada will open… Continue reading

An arrivals and departures information screen is seen at the Halifax Stanfield International Airport in Halifax on Thursday, Jan. 4, 2018. The chief executive of Atlantic Canada's largest airport is hoping for COVID-19 testing for arriving passengers "sooner rather than later," as an added measure to combat the province's third wave of the virus. THE CANADIAN PRESS/Andrew Vaughan
Halifax airport CEO hopes for more on-site COVID testing ‘sooner rather than later’

HALIFAX — The chief executive of Atlantic Canada’s largest airport is hoping… Continue reading

Shoppers wear mask as they shop at a nursery & garden shop on Mother's Day weekend during COVID-19 pandemic in Wilmette, Ill., Saturday, May 8, 2021. (AP Photo/Nam Y. Huh)
Tearful reunions mark second Mother’s Day under pandemic

Last Mother’s Day, they celebrated with bacon and eggs over FaceTime. This… Continue reading

Arizona Coyotes head coach Rick Tocchet, standing, watches the game during the second period of an NHL hockey game Wednesday, April 14, 2021, in St. Paul, Minn. The Wild won 5-2. (AP Photo/Craig Lassig)
Tocchet won’t return as coach of Coyotes after 4 seasons

GLENDALE, Ariz. — The Arizona Coyotes and coach Rick Tocchet have mutually… Continue reading

Columbus Blue Jackets head coach John Tortorella shouts at an official after a fight between Columbus Blue Jackets' s Gavin Bayreuther and Florida Panthers' Sam Bennett during the second period of an NHL hockey game, Monday, April 19, 2021, in Sunrise, Fla. (AP Photo/Lynne Sladky)
Tortorella out after 6 years as Columbus Blue Jackets coach

COLUMBUS, Ohio — John Tortorella is out as coach of the Columbus… Continue reading

A caribou grazes on Baffin Island in a 2008 file photo. A last-ditch attempt to save some of Canada's vanishing caribou herds is a step closer after a scientific review panel's approval of a plan to permanently pen some animals and breed them to repopulate other herds. THE CANADIAN PRESS/AP-Kike Calvo via AP Images
Parks Canada captive caribou breeding proposal gets OK from scientific review panel

JASPER, Alta. — A last-ditch attempt to save some of Canada’s vanishing… Continue reading

The smouldering remains of houses in Slave Lake, Alta., are seen in a May 16, 2011, file photo. The wildfire that is devastating large swaths of the northern Alberta city of Fort McMurray comes just five years after another blaze destroyed 400 buildings and left 2,000 people homeless in Slave Lake, Alberta. THE CANADIAN PRESS/Ian Jackson
Ten years later: Five things to know about the Slave Lake wildfire

A wildfire burned about one-third of Slave Lake in northern Alberta in… Continue reading

Most Read