Clearly, something major – dire, even – was going down. Actually, it was no more than the Greeks going to the polls, something they have been doing in one form or another for thousands of years.
This is a dinky economy. It contributes about 2% to European gross domestic product and 0.5% to global GDP. It hardly matters in the wider scheme of things, but right now it has investors everywhere on tenterhooks lest it go down the toilet and take the rest of us along.
Its importance to Europe is not too dissimilar to the impact the combined economies of Swaziland and Lesotho would have on South Africa. Financial default in these countries would be painful for those living there, but would hardly cause a blip – never mind a shudder – in the wider Southern African region.
So why all the angst about Greece; why not just let it go? Why stand ready for concerted action, depending on how the Greeks vote?
Imperilled global economy
As it turned out, the imperilled global economy was saved because the main pro-bailout party won about 2% more of the vote than its nearest rival, an anti-bailout party that wants to tear up the existing deal with the country’s European Union masters.
No party achieved a majority and even though the winning party gets 50 extra seats, according to the Greek Constitution, indications by midweek were that the pro-bailout party would be able to form a government.
But with more job cuts and austerity coming, pundits see the life of this ruling coalition likely to be measured in weeks rather than months or years, raising the prospect that the Greeks will soon have to vote again.
Why is an economy that might normally be considered a rounding error in global economic terms so pivotal to what happens next?
One obvious point is that any special deals Greece is able to cut can quickly be requested by countries such as Portugal and Ireland, which have bailouts with harsher conditions. And with giants Spain and Italy either already over the edge or teetering on needing bailouts, this gets to be a very big club indeed.
But equally important is the amount of Greek debt the authorities – the European Central Bank, the EU and the International Monetary Fund – have taken on as they seek to calm the markets.
The New York Times recently reported estimates by investment bank UBS that said three-quarters of Greek debt, about $229billion, was held by one of the “troika” members, the EU, the European Central Bank or the IMF.
Eurosceptic Nigel Farage created a furore in the European Parliament last week when he suggested that a Greek exit would mean that the bank “would be bust”, with a collective exposure of €440billion to bailed-out countries. To rectify the situation, said Farage, there would have to be a call on eurozone members, including Portugal, Ireland and Spain, to stump up cash.
Similarly, in the case of the €100billion deal for Spanish banks, this bailout adds significantly to Spain’s debt burden and means that Italy is expected to contribute 20% of the funds. Europe is eating itself: Italy may soon need a bailout because it is helping to bail out Spain.
An implosion in Europe would be a distressing spectacle viewed from our shores; we want and need a prosperous Europe. But now we are getting roped in, too, to contribute to a bigger, stronger firewall for the IMF.
It would be nice to believe that this problem is fixable by throwing more and more money at it. The evidence to date is strongly to the contrary.
Europeans need to work on a fix so that we can return to those days when an event as insignificant as the Greeks going to the polls does not imperil us all.