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We'll suffer the backlash as Merkel and Sarkozy let Greece go down the drain

THE seemingly never-ending Greek crisis is bad news for us in Ireland. The longer it is allowed to drag on the more difficult it will be for us to put our affairs in order.

Like Blackadder's Baldrick it seems as if German Chancellor Angela Merkel and French President Nicolas Sarkozy have a cunning plan to "solve" the Greek crisis, which has now dragged on unresolved for almost two years.

And what might their plan be? Well it seems as if Europe's Dozy Double believe that a telephone call is what it will take to sort it all out.


Yes folks, Europe is stuck in the middle of what has been allowed to become the worst financial crisis for 80 years and the leaders of the eurozone's two largest economies reckon that it can all be sorted out by simply picking up the phone.

Unfortunately things are a lot more serious than that. Fondly imaging that a three-way telephone conversation between Merkel, Sarkozy and the unfortunate Greek Prime Minister George Papandreou, would somehow magically "solve" the euro crisis shows just how deluded the German and French leaders have become. Let's get real here.

Greece is bust, utterly bust. With debts of at least €350bn, there is no way that it can repay all that it has borrowed. With yields on two-year Greek government bonds now standing at over 60pc it is clear that some sort of Greek default is now inevitable and soon.

Which will make things even more difficult for us here in Ireland. Unlike the Greeks we have been making progress in sorting our public finances. After four extremely tough Budgets it is clear that runaway public spending and Government borrowing are gradually being brought under control.

Even the banking system, whose problems forced Ireland to seek the EU/IMF bailout last November, now looks as if it will cost less to fix than had originally been feared.

Unfortunately the Greek saga and the likelihood of a debt default there probably followed by its departure/ejection from the eurozone, threatens to undo all our good work.

This is because as the Greek crisis reaches its inevitable conclusion investors are engaged in a lemming-like "flight to quality", buying gold, US treasuries, Swiss francs, German government bonds etc, and mindlessly selling assets which are perceived as being risky.

Ireland has been a victim of this with the yields or implied interest rate on Irish Government bonds climbing back over 9pc as investors dump them for whatever price they can get.

This situation is likely to get worse when Greece eventually defaults, something that is now likely to happen within the next few weeks. With Europe's leaders having failed to grasp the nettle for so long the Greek debt default and probable departure from the eurozone will almost certainly be a messy and acrimonious affair with both sides blaming the other.

Ireland, despite the fact that we have made a much better fist of managing our problems over the past three years, will suffer from the Greek default fallout.


The "flight to quality" which we have already seen over the past few weeks will intensify and Ireland's hopes of returning to the international bond markets in late 2012 or early 2013 will have to be abandoned.

This is in turn will force us back on to the tender mercies of our EU "partners", basically France and Germany. In return for continuing to support us they will demand further painful spending cuts and tax increases. Irish public sector pay, social welfare and the 12.5pc company tax rate will all be up for grabs.

We will be paying the price for the Greek crisis long after it has left the eurozone.