Recently, Alexis Tsipras was elected as the Prime Minister of Greece for the second time this year. His relief in victory will have been short lived. With youth unemployment at 48.3%, and national debt at €315 billion and rising, he’s got his hands full.
The election was forced by Tsipras splitting opinion in his party over the decision to introduce new austerity cuts and the biggest bailout package the Eurozone has ever given at €86 billion. Whilst all eyes are on Tsipras’s next move one needs to consider how the Greeks’ monumental bailout may indirectly effect Britain, and potentially draw them into the messy European sovereign debt crisis.
If the latest Greek bailout fails to stabilise their economy, Greece will be in an even worse position than before, with mountains of new debt which they will be unable to service. This would produce a loss of confidence in the Eurozone, with resulting instability in the previously bailed out Eurozone economies of Spain, Ireland, Portugal and Cyprus. It’s not out of the question that this financial disease could also spread to other struggling Eurozone economies such as Italy, who are still reliant on the European Central Bank’s funding.
These countries are among Britain’s largest trading partners and if they become unable to afford our goods and services, then the British people will feel the repercussions particularly in areas such as employment and manufacturing.
Instability and tensions in the Eurozone may also arise if Greece is offered debt relief in a further attempt to solve its problems. The previously bailed out Eurozone countries, who accepted the rigorous austerity imposed as a condition of receiving help, may resent the fact that they were not offered such generous terms. These tensions would place further strains on the Eurozone and may cause these countries to demand similar concessions. If the Eurozone cannot afford this then where will they turn for further funds?
A probable source in European eyes would be Great Britain. Although not in the Eurozone, the EU may call for solidarity from its largest non-euro member. The European Central Bank having helped bail out Greece may well turn to Britain for support, even if this is done indirectly to replace funds committed by the European Central Bank to Greece. Such demands may slow or even damage Britain’s economic recovery.
Whilst the austerity measures experienced in Britain have been unpopular, and may well become more severe in the coming months, they have been comparatively mild to those already experienced already by some of our European neighbours. Should anymore large scale support be required for Greece or any other struggling Eurozone economy, then the severity of Britain’s austerity measures could increase even further.
Despite not being in the Eurozone, Britain is not immune from the repercussions of the continuing European debt crisis and will not be able to escape the effects of any further turbulence. Those committed to the ideal of the Euro’s survival do not appear to be prepared to contemplate the withdrawal of any member country, or the failure of the Euro itself. These repercussions could result in an increasing Eurosceptic mood in Britain, and a rise in support for the UK Independence Party. With a 2017 referendum on the horizon placing Britain’s membership to the European Union on the line, it is not out of the question that a ripple effect of the Greek bailout may tip the balance, which would change the political and economic landscape of Europe.