Not only Greece

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.

Hence 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.

Greece had 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 crisis.

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 detriment.

The entire euro zone may yet be terminally destabilized.

Unfortunately, no facile formula exists for the EU’s greatest-ever predicament.

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 unemployment.

A full one-third of our exports go to Europe.

Plummeting values of European state bonds could affect Israeli banks that invested in these assets. This could send yet more shockwaves through our economy.

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 spectators.

In such circumstances there may be no sidelines and no safe vantage points.