As Greece stands on the brink of exiting the Euro and its looming elections threaten to instate a right-wing party prepared to return to the drachma, the implications for the rest of Europe look harsh. So far this year, Greece has received half of its $185 billion bail out from the European Financial Stability Facility, and the remainder of Europe are now threatening to halt its cash flow should the country reject the Euro.
The harsh measures Greece now face are not without justification. Currently, Spain, which is one of the biggest financial powers in Europe, is experiencing an economic crisis that has seen an increase in bad debts of 148 billion euros. Should Greece exit, the impending economic crisis in Spain would be much harsher. Greece's proposed return to the drachma has also caused a sense of disquiet amongst those who rule smaller EU countries, such as Cyprus. As Cyprus relies on its business operations with Greece to float its economy, it too will feel a heavy blow if Greece leaves the Euro and adopts the drachma. This sense of contagion will also spread to other countries in Europe that face a double-dip recession, which includes non-Euro countries like the United Kingdom.
In total, the Greek government owes the countries of Europe 250 billion Euros. If it adopts the drachma, its consumer and business financial dealings will be frozen to the point that it stands to lose over 50% of its GDP. With such harsh figures speaking large volumes, it is clear to see why Greece's financial plight will have a dramatic effect on even the strongest of European economies. Even Germany, which was once hailed as the economic super power destined to save Europe, is showing signs of feeling uncomfortable in the wake of Greece's instability. Until recently, Germany made moves towards forming a European Stability Mechanism, which would form a stable bail out fund for other flailing economies. Now, Germany leads a small handful of countries that are halting and waiting to see how Greece's finances unfold before making a decision. Until Greece makes a move, the prognosis for Europe remains uncertain. Regardless of when it chooses to return to the drachma, the outlook is bleak.