The next tsunami to hit the global financial system might be triggered in Athens. The parliament has so far failed to elect a new president, which means that it is likely that there will be a general election in February. On present showing, Greeks fed up with years of austerity and shrinking earnings will vote in a populist party determined to tear up the bailout deal with the EU. If that happens, the European single currency, the euro could find itself in further serious trouble. There are those that now discount the seriousness of a Greek exit - or Grexit - from the eurozone. The argument goes that this has been on the cards ever since the country came within an ace of defaulting on its huge international debts. This financial failure was made all the worse by the officially sanctioned false accounting, which had kept the full and dangerous extent of Greek indebtedness from its eurozone partners. But a Grexit will have far wider implications for the single currency. It may in fact have a devastating impact on the whole cohesion of the European Union. When the rules that were to govern the euro were established, absolutely no thought was given to the possibility that a eurozone country might wish or be obliged to abandon the currency. For the Euro-enthusiasts in Brussels, joining the currency was a one way street and part of a road map to faster EU integration. It is now all too painfully clear that those driving the eurozone project chose to ignore a fundamental reality which a first-year economics student could have spotted. Currencies are at core a reflection of national productivity. Their different value against other currencies can be taken as a scorecard of economic success or failure. The now 18 eurozone countries have always varied in economic strength. It was thus going to be a big task to expect the single currency that united them to be used as an accurate measure of the achievement of every eurozone economy. Could the profligate, corrupt and inefficient Greek economy ever share the same measure of success as buttoned down, industrious and frugal Germany? When the Greek drachma existed, the government in Athens quite rightly had to pay far more to borrow from the international markets than did Germany when it still had the Deutschmark. But when both were part of the eurozone, the costs of funds for the incautious Greeks was precisely the same as for the highly cautious Germans. This nonsense has been the fault line in the great eurozone enterprise. The confidence of international markets in the single currency has already been shaken once. That it has returned is more about the limited investment options - dollar, euro and yen - than any inherent belief in the euro's strength, durability and long-term value. The rise of the Chinese renminbi as a new reserve currency is, therefore, a new and probably extremely serious threat to the single currency. Indeed if the Greeks are thrown out of the eurozone, the divorce is likely to be long and messy. The value of the single currency will come under considerable pressure, underpinned by the continuing recession in continental Europe. Anxious investors may very well flee to the Chinese currency, forcing Beijing to boost its status as an international medium of investment and exchange. If the Greek parliament fails to elect a president, this may be the straw that breaks the euro's back.
