The Greek saga has clearly shown that no matter how severe the crisis might get, we cannot count on the EU's Rich Auntie Germany to race to our rescue
'IT'S been a brilliant day," a friend of mine who manages a large investment fund said as we sat down for a lunch in a leafy suburb of Dublin. "We've been exiting Greece's credit default swaps all morning long."
Having spent a couple of months strategically buying default insurance on Greek bonds, known as CDS contracts, his fund booked extraordinary profits.
This wasn't luck. Instead, he took an informed bet against Greece, and won. You see, in finance, as in life, that which can't go on, usually doesn't: yesterday morning, around 9am, the Greek government finally threw in the towel and called in the IMF.
As a precursor to this extraordinary collapse of one of the eurozone's members, Greece has spent the last 10 years amassing a gargantuan pile of public debt.
Ever since 1988, successive Greek governments paid for their domestic investment and spending out of borrowed cash.
Just as Ireland, over the last 22 years, Greece has never managed to achieve a single year when its government structural balance -- the long-term measure of public finances sustainability -- were in the black.
Finally, having engaged in a series of cover-ups designed to conceal the true extent of the problem, the Greek economy has reached the point of insolvency.
As of today, Greece is borrowing some 13.6pc of its domestic output to pay for the day-to-day running of the state. The country's debt levels are now in excess of 115pc.
Despite the promise from Brussels that the EU would stand by Greece, last night Greek bonds were trading at levels that suggested Kenya and Colombia are a safer investment.
Hence, no one was surprised when yesterday morning the country asked the IMF and the EU to provide it with a loan to the tune of €45bn. This news is not good for the Irish taxpayers.
Firstly, despite the EU/IMF rescue funds, Greece, and with it the eurozone, is not out of the woods.
The entire package of €45bn, promised to Greece earlier this month, is not enough to alleviate longer-term pressures on its government. Absent a miracle, the country will need at least €80-90bn in assisted financing in 2010-2012.
The IMF cannot provide more than the €15bn it has already pledged, since IMF funds are restricted by the balances held by Greece with the Fund.
The EU is unlikely to underwrite any additional money, as more than 70pc of German voters are now opposing bailing out Greece in the first instance.
All of which means the financial markets are unlikely to ease their pressure on Greece and its second-sickest euro area cousin, Portugal. Guess who's the third one in line?
Ireland's general government deficit for 2009, as revised this week by the Eurostat, stands at 14.3pc -- actually above that of Greece and well above that of Portugal.
More worryingly, the Eurostat revision opened the door for the 2010 planned banks recapitalisations to be counted as deficit.
If this comes to pass, our official deficit will be higher than 14pc of GDP this year, again.
All of this means we can expect the cost of our borrowing to go up dramatically.
Given that our Government is engaging in an extreme degree of deficit financing, Irish taxpayers could end up paying billions more annually in additional interest charges.
Adding up the total expected deficits between today and 2014, the taxpayers could end up owing an extra €1.14bn on our deficits.
Adding the increased costs of NAMA bonds pushes this figure to over €2.5bn. Three years worth of income tax levies imposed by the Government in the Supplementary Budget 2009 will go up in smoke.
Second, the worst-case scenario -- the collapse of the eurozone -- still looms large despite the Greek request for IMF assistance. In this case, the Irish economy is likely to suffer irreparable damage.
Restoration of the Irish punt would see us either wiping out our exports or burying our private economy under an even greater mountain of debt, depending on which currency valuation path we take. Either way, without having control over our exit from the euro, we will find ourselves between a rock and a hard place.
Third, regardless of whatever happens with Greece in the next few months, taxpayers can kiss goodbye to the €450m our Government committed to the EU rescue fund for Greece. Forget the insanity of Ireland borrowing these funds at 4.6pc to lend to Greece at 'close to 5pc'.
With bond issuance fees, the prospect of rising interest rates and the effect this borrowing has on our deficit, the deal signed by Brian Cowen on March 26 was never expected to break even for the taxpayers. In reality, the likelihood of Greece repaying back this cash is virtually nil. Which brings us back to our own problems.
What the Greek saga has clearly demonstrated is that no matter how severe the crisis might get, one cannot count on the EU's Rich Auntie Germany to race to our rescue. We have to get our own house in order.
Unions -- take notice -- more deficit financing risks making Ireland a client of the IMF, because in finance, as in life, what can't go on, usually doesn't.
Dr Constantin Gurdgiev is adjunct Lecturer in Finance at Trinity College Dublin