The result of the Greek election has extended a time of uncertainty in Europe. Had voters handed their future to the country’s left-wing Syriza party, it would most certainly have moved them closer to exiting the euro zone, with potentially catastrophic results. While the lull is no less conclusive - the recently sworn in prime minister Antonis Samaras’s coalition government has called for the renegotiation of the terms of the financial lifeline which is keeping Greece from bankruptcy, but which has also deepened its five-year recession - it may give the region’s leaders more time to reflect on possible consequences of each move, and a chance to agree on lasting, sustainable solutions.

What could happen if Greece leaves the EU?

It’s tempting to wonder what all the fuss is about. After all, Greece only contributes 2% to the total euro zone economy. The problem is, according to various economic experts, if Greece is the first country to violate the rule that “once you join the euro you can’t leave”, there’s no reason why other struggling EU economies (namely Ireland, Portugal and Spain) wouldn’t decide to follow suit. Even Italy could be in danger of defaulting on their sovereign debt, a massive sum of over $1 trillion.

An Economist clip predicts that once euro membership becomes a two-way street, three dangerous consequences will follow: firstly, vulnerable countries will find it even harder to borrow from the markets, as no one wants to lend money in euros only to be paid back in a new, weaker currency; secondly, European banks will become even more terror-struck, intensifying the already damaging credit crunch and thirdly, and perhaps scariest of all, the risk of bank runs will rise sharply. This will happen as on-looking countries see Greeks making losses as their deposits are converted to less valuable drachma, and desperately try to get their own money out as fast as they can. A banking run needs a credible government guarantee to put it to a stop – the thing that many eurozone members can’t give.

Under its current obligations, exiting the euro would mean that Greece would also have to leave the EU. However, this wouldn’t be the end of the world – Iceland, Norway and even Switzerland survive just fine. Greece would have to start afresh, and, with such a weak currency, would benefit from a rapidly-growing economy, much akin to the way Argentina made its recovery. But this is the long-term view. In the short term, Greece would have no buying power, everything would be extremely expensive, and the country would also be broke. 

And if Greece stays?

So, staying seems like the best-case scenario. But will renegotiated debts even present a viable solution to Greece’s stricken economy, when it has technically already defaulted on debts with its creditors earlier this year? And do the other 16 nations want a defaulter in the Euro?

Last year French Prime Minister Nicolas Sarkozy told the Greeks that they should abide by the rules or leave (Sarkozy has since been shown the door). And last week German Finance Minister Wolfgang Schaeuble made the comment that Greece has already lost much of Europe’s trust: “The most important task facing Mr Samaras is to enact the programme agreed upon quickly and without further delay, instead of asking how much more others can do for Greece,” he is reported to have said.

This kind of sentiment is understandable, but without support from its more responsible siblings, there really is no assurance that Greece’s growth prospects will improve, or that risks will diminish. An article by political and economic risk management firm Kuranga and Associates implores Europe’s leaders and institutions like the IMF to remain supportive of Greece, for example with more flexible fiscal policies. While a recently published IMF research paper cites the need for structural and systemic reforms in Europe, in present conditions support for troubled countries is equally important. Until investors see both happening, confidence in the euro and in Europe’s markets will remain weak.

The effect on local markets

With Europe being a key trading partner for South Africa, the rand and growth prospects are inextricably linked to fluctuations on this market. We are all connected. Of all the countries in Africa, SA is most exposed to European financial woes – as the Global Financial Crisis of 2008 showed, when the country experienced negative growth. There is little doubt that the rapid growth now seen in many countries in Africa, will slow down if indeed Greece does default. African governments will need to immediately begin to reduce spending and look for ways to diversify trading partners within the region and with other nations in the developing world.

The ancient Greek currency unit, the drachma, translates as a “handful”. Unfortunately, the EU and the rest of the world will need a lot more than this to get out of the next economic crisis.

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