Economic and geopolitical dangers in Greek tragedy
Over the last couple of weeks I have been determined to avoid two things, namely mentioning the Greek exit from Europe again and referring to this exit by using the strange phrase that seems to have entered our vocabulary. I concede on the first.
Why is a country that only represents 2% of European GDP in the news so much? Why has it taken so long to reach this position? Too much has been at stake for each side not to try to reach an agreement, but also for each side not to fight until the very end. There is still the risk of an "accident" at some time. At some point, if no one blinks, it could end in a crash.
So, should Greece be kept in the euro area? There are strong mixed views, but a Greek dismissal, while understandable, involves a number of risks that tend to be underestimated - both in the short term and the longer term.
First, there is the risk that the short-term financial and economic impact is bigger than expected. Bond markets have become very illiquid and going into the prospect of lower trading volumes in the summer market does not help on that front. Lower volumes can increase volatility. Credit markets have not responded significantly so far, but if investors start to pull out "just in case" the selling could feed on itself.
The euro area recovery could also grind to a halt due to heightened uncertainty, to a point where the economic tools get more and more experimental and unpredictable. That's not a good position for markets.
There are also longer-term risks, particularly because a dangerous precedent could be set. It would no longer be credible to say that adopting the euro is irreversible.
The political situation could also become difficult. Russia and China could decide to reach out to Greece, extending their spheres of influence. All this would be destabilising for the EU project, which is already seeing many cracks in its core. Any such change in the world order would see Harry Truman, the US president who intervened in Greece in his role as the architect of the post-war agreement to stabilise Europe, turn in his resting place. Some of today's western governments would also start to become very nervous.
So maybe now is not the time? In the meantime, businesses who deal with accounts in Greek banks may wish to take advice from their bank as the situation is highly unpredictable.
Jeremy Stewart is head of wealth management and private banking at Danske Bank