Greece might be an odd location from which to expect the beginning of the end of Western civilisation or at least,the beginning of the second round of troubles associated with the financial crisis. It isnt just an ironic spin on ancient history: after several tumultuous post-war decades,everyone assumed Greece had settled down into boring,prudent,European moderation. But that was apparently a lie. Successive governments successfully misled everyone about the true size of the countrys deficits and not the way India does it either,through off-budget items like oil bonds,but through some truly inventive juggling that involved,for example,mortgaging future revenue streams from airport fees and state-run lotteries. And now,it is known that Greeces deficits are around 13 per cent of its GDP when the eurozone expects its members to keep those to 3 per cent. When governments have liabilities like that,the value of their debt starts coming under pressure. The usual way to check that? Letting the countrys currency slide a bit,so buying its debt and their goods and services is a little cheaper. But thats not an option for euro-using Greece. But the other euro-nations cant afford to see one of their number go under,either: so they will be expected to bail Greece out. Which will be tough,both because German voters wont be happy at paying for some free-spending Southern Europeans,and because nobody wants the other free-spending Southern Europeans the rest of the PIGS nations: Portugal,Italy and Spain to get any ideas. But the central point is the crisis fallout has morphed: concern for individual banks has been replaced with concern about sovereign debt. The two concerns arent equally valid: there is little likelihood that,for example,Greece or Ireland will be allowed to go bankrupt. Nor is the eurozone likely to fracture. But the markets are now alert to signs of weakness in state finances. Big-spending governments had better begin to tighten their belts.
