Not only Greece
This is the time for us to gear up for big, bad trouble. We cannot afford to be complacent spectators.
Greek man passes a drachma coin replica in Athens Photo: REUTERS/Yorgos Karahalis
It would be incorrect to conclude that last week’s formation of a new government
in Athens categorically preempted the looming Greek tragedy which threatened the
entire euro zone. Europe is by no means safe, although the Greek electorate’s
narrow pro-euro preference is clearly better than the alternative that would
have triggered potentially catastrophic chain reactions.
It’s a relief
but at best a very temporary one. The pro-bailout coalition doesn’t represent a
decisive turning point. It’s merely a brief intermission in the unfolding drama.
Europe was spared an immediate crash but the deep divide remains between its
wealth-generating northern economies and the welfare-reliant south.
initial upbeat responses were short-lived. Early gains for the euro and Spanish
and Italian bonds soon evaporated. The continuing plotline promises hair-raising
twists and turns. Israelis cannot afford not to be mindful of this. We’re hardly
invulnerable to European crises.
Dangerous as the Greek situation still
is, it may – hyperbole and doomsday scenarios notwithstanding – prove to be the
least of Europe’s worries.
The Greek economy, after all, is one of the
EU’s smallest – roughly the size of Israel’s. However, that’s where the
comparison ends. Israel has successfully amassed impressive monetary reserves
(despite military burdens that, proportionately, no EU country comes close to
shouldering). Israel had opted for conservative financial management, which much
as it had been disparaged by local populists, has kept us relatively protected
from the ravages that afflicted other states. Our healthy GDP and focus on
hi-tech research and development have spawned envy worldwide.
behaved quite in the reverse manner. Its woes are primarily homemade, not the
product of force majeure. Athens borrowed irresponsibly and built up massive
debts, while luxuriating in unfathomable self-denial and reliance on the EU to
pick up the tab. Moreover, the Greek economy, greatly dependent on tourism and
shipping, saw both these mainstays heavily hit since the 2008 world financial
The sacrifices asked of Athens are in fact less stringent than
the edicts imposed on Israel’s population in 1985. At the time, it might serve
us to recall, we were on the precipice of an even worse catastrophe than the
current Greek one, but managed to pull back and indeed attain greater economic
security and prosperity than Israel had ever known. This was achieved without
the aid of the EU and powerhouses such as Germany.
Unlike the Greeks,
Israelis accepted austerity decrees willingly. What will ensue in Spain, Italy,
Portugal and Ireland is anyone’s guess.
This is foremost a glaring
European failure. The EU superstructure, in which separate economies are
excessively interconnected, couldn’t prevent countries with over-sized public
sectors from cooking up their books to the European collective’s
The entire euro zone may yet be terminally
Unfortunately, no facile formula exists for the EU’s
One thing is certain – nothing we took for
granted can be relied on as an ongoing premise. There are no fundamentals to
count upon right now and that goes for Israel as well. No matter how much we
congratulate ourselves for the apparent Israeli economic miracle, we must
constantly remember that no country is an economic island, particularly not one
with as many EU business ties as Israel has.
A recession in Europe will
inevitably hurt the profits of Israeli exporters and could result in layoffs and
shutdowns of production lines. If Europe were to suffer a new credit-crunch,
Israel might experience secondary slowdowns, reduced growth and increased
A full one-third of our exports go to
Plummeting values of European state bonds could affect Israeli
banks that invested in these assets. This could send yet more shockwaves through
Some experts may judge our trepidations as grossly inflated,
but such fears should not be dismissed out of hand. Contingency plans must be in
place. Israeli exports to Europe have already decelerated in recent months and
this trend can significantly worsen.
In short, this is the time for us to
gear up for big, bad trouble. We cannot afford to be complacent
In such circumstances there may be no sidelines and no safe