As the crunch point nears, could Greek default prove to be a geopolitical disaster for Europe?

Greece is nearing default (Source: Getty)

Famke Krumbmüller, a Europe analyst at Eurasia Group, says Yes

If a default prompted Greece’s withdrawal from the euro, and the new arrangement were managed badly, it could have harmful consequences for the rest of Europe. Most importantly, it would send negative signals about the future of Eurozone integration – the monetary union was never conceived to be reversible, and Grexit could undermine the stability of the single currency bloc or even indicate the beginning of its disintegration.

It’d also test the political union of the EU, if a single radical government is able to undermine all common decisions and the future of the project. And if Greece becomes a failed state, the Balkan region could be further destabilised.

Lastly, having an EU and Nato member become receptive to direct Russian and Chinese money, and therefore influence, could have unpleasant geopolitical consequences for the Europeans, and the US. This is ultimately why Berlin and Washington fear the geopolitical, more than the economic, consequences of a Grexit.

Diego Iscaro, senior economist at IHS Global Insight, says No

A Greek default would certainly send shockwaves across the Eurozone. Bond and equity markets would be hit, while increasing uncertainty would also take its toll on confidence levels. However, we estimate that the financial impact of a default in Europe as a whole is likely to be temporary and limited by several factors, such as the creation of the European Stability Mechanism (ESM), as well as the European Central Bank’s outright monetary transactions and recently announced QE programme.

Moreover, although the Greek economy will be severely hit by the default, and the political situation is likely to be chaotic, Europe and non-European Nato members will have strong incentives not to let the situation deteriorate out of control, given Greece’s key geopolitical position on Nato’s south-eastern border. We do not think Russia currently has the financial resources to rescue Greece, while a bailout from China is also extremely unlikely.

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