Tuesday 23 January 2018

If Greece leaves euro, we'll all pay for Syriza's false promises

Greek Prime Minister Alexis Tsipras
Greek Prime Minister Alexis Tsipras
John Bruton

John Bruton

If Greece defaults on its debts, and leaves the euro, the effects will be very hard to calculate.

The precedent, that of a eurozone country defaulting on its debts and leaving the euro, will eventually place upward pressure on the interest rates charged to small eurozone nations with substantial debts. Big countries with either large government debts or weak banking systems could also be hit hard. Financial markets are emotional and erratic and often fail to make distinctions that should be made.

The effect of a Greek default may not, of course, be felt immediately, thanks to quantitative easing, but the underlying precedent will tend to corrode confidence in government bonds generally and confidence in the irreversibility of the euro. Maintaining confidence, and doing what is just and rational in an abstract sense, are not always the same thing.

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