Only the hedge fund millionaires shorting the Greek debit would benefit from the demise of the euro
Europe's eyes are on the outcome of a knife-edge election. But it's not ours. A possibly more important one is taking place tomorrow, in North Rhine Westphalia, Germany. At stake is no less than the future of the euro, with voters in the industrial heartland of the Ruhr delivering their verdict on the extraordinary €22.4bn (£19bn) that German taxpayers are stumping up as their share of the rescue package for Greece.
A growing backlash against a country punch-drunk on debt, where, according to press reports, workers retire on average at 53, and where state pensions are 95% of average pay, means the coalition led by German chancellor Angela Merkel will no doubt suffer a bloody nose.
In Britain, foolhardy eurosceptics are gleeful. A voter backlash (they hope) will mean the bailout, although approved by the Bundestag on Friday, could fail to rescue Greece as markets guess that an under-financed package will receive no more cash from Europe's paymasters.
Cue a speculative attack on Portugal, then Spain, and then the final unravelling of the hated euro project. Oh, and we Brits can look forward to cheap Greek holidays as the plucky pound weathers the storm.
But let's be clear. A collapse of the euro, even if contained to the "Club Med" countries, will kebab our own personal finances, too. And I write as someone who has been persistently sceptical about the benefits of sterling joining the euro. The British eurosceptics salivating over the prospects of Brussels humbled and Athens punished for profligacy are not just hypocrites – our deficit is not far off Greece's – but simply shooting themselves in the foot. The only winners from a demise of the euro would be the hedge fund millionaires shorting Greek debt.
A Greek default would send shockwaves through the European banks – mostly French and German – which hold Greek bonds. It's what happens next that threatens to turn this into another Lehman – many times over.
Total foreign bank exposure to Greece, Portugal and Spain combined comes to around €1.2 trillion. European banks have lent most of this, with British banks – hardly in a position to cope with yet more write-downs – exposed almost as much as their German and French counterparts.
As their capital reserves are decimated, lending will shrink, the feeble economic recovery will go into reverse and, as the euro weakens, the hoped-for renaissance in manufacturing exports will wither away. Meanwhile, Greek workers – many of whom earn no more than €1,000 a month – will be suffering vicious pay cuts while the shipping millionaires find safe harbour in an offshore tax haven.
If we want to be isolationist about this, we should be praying that the Germans continue to bail out Greece before any of the bill ends up in our hands. And it's not as if the Germans are writing a blank cheque. What they are doing is lending money to Greece at 5%. Since the German state can borrow funds at below 4% it may, over the longer term, even make a profit.
It's a small price to pay for stability in Europe's financial system which, after all, is still centred on London.
A growing backlash against a country punch-drunk on debt, where, according to press reports, workers retire on average at 53, and where state pensions are 95% of average pay, means the coalition led by German chancellor Angela Merkel will no doubt suffer a bloody nose.
In Britain, foolhardy eurosceptics are gleeful. A voter backlash (they hope) will mean the bailout, although approved by the Bundestag on Friday, could fail to rescue Greece as markets guess that an under-financed package will receive no more cash from Europe's paymasters.
Cue a speculative attack on Portugal, then Spain, and then the final unravelling of the hated euro project. Oh, and we Brits can look forward to cheap Greek holidays as the plucky pound weathers the storm.
But let's be clear. A collapse of the euro, even if contained to the "Club Med" countries, will kebab our own personal finances, too. And I write as someone who has been persistently sceptical about the benefits of sterling joining the euro. The British eurosceptics salivating over the prospects of Brussels humbled and Athens punished for profligacy are not just hypocrites – our deficit is not far off Greece's – but simply shooting themselves in the foot. The only winners from a demise of the euro would be the hedge fund millionaires shorting Greek debt.
A Greek default would send shockwaves through the European banks – mostly French and German – which hold Greek bonds. It's what happens next that threatens to turn this into another Lehman – many times over.
Total foreign bank exposure to Greece, Portugal and Spain combined comes to around €1.2 trillion. European banks have lent most of this, with British banks – hardly in a position to cope with yet more write-downs – exposed almost as much as their German and French counterparts.
As their capital reserves are decimated, lending will shrink, the feeble economic recovery will go into reverse and, as the euro weakens, the hoped-for renaissance in manufacturing exports will wither away. Meanwhile, Greek workers – many of whom earn no more than €1,000 a month – will be suffering vicious pay cuts while the shipping millionaires find safe harbour in an offshore tax haven.
If we want to be isolationist about this, we should be praying that the Germans continue to bail out Greece before any of the bill ends up in our hands. And it's not as if the Germans are writing a blank cheque. What they are doing is lending money to Greece at 5%. Since the German state can borrow funds at below 4% it may, over the longer term, even make a profit.
It's a small price to pay for stability in Europe's financial system which, after all, is still centred on London.
