By: Dr. Mike Campbell

The sovereign debt crisis is a high stakes game for the Eurozone. Failure to find a credible way out of the morass could scupper what confidence remains in the Euro leading, in the worst case scenario, to a break-up of the currency bloc. Should this happen, the world would find itself in an economic version of a nuclear winter where the cataclysm throws up enough debris into the atmosphere that the warming rays of global recovery are blocked out. Hopefully, as in the Cold War period, the certainty of mutually assured financial destruction will be enough to concentrate the minds of politicians and investors alike and we will move back from the brink.

The second Greek bailout must be finalised quickly to avoid a Greek default on €14 billion of obligations falling due next month. Without the agreement being in place, Greece will trigger a disorderly default and the consequences of such an event were last faced by a lady called Pandora. The Greek people feel that they have already suffered enough, under austerity measures already in place, for sins visited on them by politicians who fibbed their way into the Euro and allowed a Mount Olympus-sized debt mountain to grow. Unfortunately, Greece’s European partners insist that austerity cuts should be even more draconian.

European Commission Digital Affairs Commissioner, Neellie Kroes, did little to calm the situation when stating in a Dutch newspaper, De Volkskrant, that “Greece leaving the Euro is absolutely no man overboard”. This is probably a popular viewpoint, but is far from the official EC line. EC President, Jose Barosso, was quick to stress that he wanted to see Greece remain in the single currency bloc. German Chancellor, Angela Merkel, said as recently as Tuesday that a Greek exit from the Euro would have “unforeseeable consequences” – the bottom line is that a deal will be struck and the Greeks will have to tighten their belts still further. Market sentiment seems to have shifted in favour of the Euro (and the logic of a deal) with the single currency recovering about 5 cents against the US Dollar in recent weeks, returning it to its mid-December value (EUR:USD 1.3273).