If Greece has to default, the results could be catastrophic for Ireland
EURO ZONE CRISIS
Published 29/09/2011 | 05:00
IT takes 14 hours to fly to Greece these days, because there are no direct flights anymore. It is just one example of the almost non-existent trade links between the two countries.
The tiny Irish community of perhaps 100 people in Athens is another.
Perhaps the absence of trade and cultural links explains why so little attention is being paid here to what will happen if Greece explodes in the coming weeks and months.
This indifference is puzzling because no country in Europe stands to lose more than we do if Greece comes apart at the seams.
The graphic looks at some of the possible outcomes for Ireland if there is a default. It is only a set of scenarios rather than an attempt to predict what will happen.
With so many possible starting points for any Greek default, the eventual impact on Ireland is impossible to forecast although the broad outlines are clear.
The example of Lehman Brothers is too obvious to ignore. The results were damaging but also spurred the US authorities to take action and save all remaining financial institutions.
It seems probable that history would repeat itself and the European Commission, the ECB and the international community would be forced to intervene to save Ireland.
We could, in effect, become the AIG or Fannie Mae of the crisis; protected at any cost to contain the crisis engulfing Europe.
The first few days immediately after a Greek default would probably be the worst.
The working assumption must be that a credit event will, at least temporarily, prevent payments to Ireland from the EU's various alphabet-soup funds.
With banks in France, Germany, Italy and Spain all requiring vast amounts of cash, we would do very well to hang on to what has already been promised to us. A second bailout would be impossible.
If this happens, we will quickly face a horrific choice between the mother of all austerity drives and some sort of default. With no money for public-sector workers or those on social welfare and no money to prop up the banking system, which requires subsidies in the form of the promissory notes for years to come, it would not be long before money stopped coming out of ATMs.
The banking problem could be exacerbated by a fresh run on the banks which might force the Government to seal the borders and block all transfers. While this could stem the tide, we could not live cut off from Europe indefinitely.
The process would have to end in one of two scenarios; rescue by Europe and the rest of the world or a hasty exit from the euro.