Greek default and the domino effect

have the knock-on effect of drying up credit creation across Europe and, to varying degrees, constricting economic growth. The largest holders of Greek bonds are the French banks followed by the Germans, but smaller countries such as Romania, Bulgaria and Cyprus also find themselves extremely dependent on the stability of the Greek banking system.

Another problem relating to bonds is that were Greece to default it would send the message to the market that this is now a possibility for other countries facing high debt and large budget deficits. Prospective buyers of especially Spanish, Portuguese and Irish bonds would now demand higher interest rates on these bonds in order to compensate for the perceived higher risk of default.

This makes raising much-needed finance for these countries more expensive, reducing the likelihood that they would recover. Going back to Greece itself, a default will almost certainly result in an exit from the euro.

This is not from a spiteful reaction of other members but rather a decision by Greece itself in order to finance the budget deficit and rebuild the economy it would need to print money.

No individual state controls the supply of euros and in order to do so, Greece would need to switch back to the Drachma and regain control of its own money supply.

Forecasters predict that this would cause an immediate devaluation of currency by 60 percent to 70 percent. Looked at in another way, means that wealth would immediately decrease by more than half and the price of imports would more than double. Unless borders are quickly closed, the financial problems of Europe will turn to physical ones of mass emigration.

While bailout conditions such as a shaving of minimum wage sound dramatic and controlling, to many it should sound like a gift, given the alternative outcome.