Home' Trinidad and Tobago Guardian : June 28th 2015 Contents JUNE 28 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | SBG15
Should the US and the rest
of the world really care that
Greece is standing on the
brink of defaulting on its
debt and possibly abandon-
ing the euro? After all, its
economy amounts to just two per cent of
the whole eurozone.
If it does tumble out of the euro, Greece s
GDP will probably shrink by as much as 20
per cent to 30 per cent as its access to inter-
national credit evaporates and its interna-
tional trade disintegrates, but it is unlikely
to have much of a direct impact on the US
or the rest of the world economy.
To be sure, people have compared Grexit
with the collapse of Lehman Brothers in
2008, which triggered a financial tsunami,
with stock exchanges plunging around the world, a
global recession, unemployment rocketing and market
confidence shaken to its very core; the world is still
recovering from that shock.
But Greece s economy is about the size of the city
of Milan in Italy, which is smaller than Detroit was
back in 2005, and the world has carried on just fine
with the Motor City bankrupt.
The knock-on, domino effect of Greece s default
could well hurt the US and the world economy,
though. Because if Greece does fall out of the euro,
the whole eurozone is under threat, and if that col-
lapses then the US and the rest of the world could
be in for a bumpy ride.
If Greece is allowed to fall out of the eurozone,
the financial markets will get jittery. The smart money
has already pulled out of Greece, but if it defaults,
investors will start fleeing other debt-ridden members
like Spain and Portugal, fearing something similar,
perhaps plunging their fragile economies back toward
The value of the euro will plummet and the Euro-
pean Central Bank would have to increase interest
rates, putting a further brake on the eurozone econ-
omy when it is still struggling to recover from the
financial crisis as its GDP bumps along at less than
one per cent annual growth.
This would harm US exports. Europe is the US s
second biggest trading partner, with the economic
activity between them accounting for one-third of
total goods and services traded in the world. Exports
from the US to Europe amount to around US$470
billion a year.
The ECB has brought in measures to buy up periph-
ery bonds in an attempt to limit the spread of any
financial contagion from Greece s exit in theory. But
there will be doubts in the markets over Spain and
Portugal s continued participation in the euro and
fears of contagion from Greece s plunging economy.
After the IMF and the ECB, foreign banks have about
US$46 billion of exposure to Greece, with Spain and
Portugal two of Greece s bigger creditors, so they
will feel the hard landing if Greece crashed out of
the euro and returned to the drachma.
Spain, in particular, has a sizable left-wing populist
party, Podemos, which is similar to Greece s Syriza.
It has been winning support after swingeing austerity
policies were implemented to meet its bail-out con-
ditions; it may garner further public support if the
Spanish public see Greece defying the IMF and the
ECB and if they do eventually turn out to be better
Everybody agrees the short-term effect of leaving
the euro will be catastrophic for the Greek economy
and its people, but in the long term some economists
believe Greece would be better off outside a currency
union it should never have joined in the first place,
and it would not have had to pay off all of its onerous
The instability and lack of confidence in the euro-
zone could well lead to more volatility in stock
exchanges around the world.
At the moment it still seems more fantasy than
fact that European leaders would allow Greece to
exit, and this possible disastrous domino to drop,
but historians are still incredulous that the sequence
of events that led to World War I actually took place;
and that is with the benefit of hindsight.
Grexit is a risk, and it is a risk to the world and
US economy that businesses should be aware of and
examine. The global economy is now so intercon-
nected that the sequence of events that follow are
hard to know or predict exactly, as the financial crisis
has shown. (Reuters)
If Greece leaves eurozone,
here's what will happen
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