Why should we, not being in the euro zone, care that much about the economic meltdown in Greece? Or about Ireland, Portugal and Spain, whose financial woes are threatening to destabilize the European Union? One very simple reason.
We live in a global village, as the communications theorist Marshall McLuhan convinced us as far back as 1962, where the collapse of a national economy in a far away country could impact drastically on our own, affecting our standard of living and way of life. Call it, if you wish, the butterfly effect.
Consider a case in point: Around the end of 1999, a major earthquake hit much of Taiwan, toppling buildings, knocking out power grids, destroying railway lines and killing 2,500 people. It did not take long for that disaster to affect the lives of thousands of of Americans.
Factories owned by companies such as Dell and Hewlett-Packard, in states as far apart as California and Texas, began to shutter assembly lines, send workers home and close down their doors after being cut off from their supplies of semi-conductor chips imported exclusively from the island nation.
Or consider a more drastic example of how closely interconnected the world has become, effectively contracting into McLuhan's global village, and how shock waves from one economic calamity in one region in it would, almost willy-nilly, reach the shores of another.
After rapid growth in the early and mid 1990s, the so-called Asian Tigers, namely Thailand, the Philippines, Malaysia and South Korea, went through a spin by 1997, caused by huge speculation on their markets, which created a bubble, which in turn soon popped after economists detected flaws and predicted a crash.
The crash, when it came, was not only massive — pauperizing large segments of the population in these countries — but also contagious, for it left its macroeconomic imprint on the rest of the world.
Suddenly investors were reluctant to lend to developing nations, resulting in economic slowdowns.
The trickle-down effect from the fall of the Asian Tigers did not end there, for it also contributed to the 1998 Russian financial crisis, which in turn caused Long-Term Capital Management in the US to collapse, after losing $4.6 billion in four months.
That's why Germany today cannot depend on the goodwill of countries in the euro zone like Spain, Ireland, Portugal and Greece (Greece in particular, with its lopsided production system and ample tax cheats) when it bails them out with billions of dollars in loans.
Just as our personal bank officer will insist on collateral before he lends us money, a lending nation will insist on checks and balances (read, a rigorous austerity program) from a borrower nation.
After all, the long-term security and well-being of societies in the euro zone are contingent on how each subsystem dynamically interacts with the system as a whole.
The crisis in Spain, Portugal, Ireland and Greece has already spread to the whole. And the bargaining over a deal to rescue their economies, and by extension the euro zone itself, has begun.
The issue is not whether a bailout is impending but how and under what conditions to dole it out, for each rescue operation will vary in each case.
Spain, for example, the fifth largest economy in the European Union, with relatively small budget deficits, a low level of debt, and spending cuts already in place, may end up arguing successfully that European aid to its banks should not come with the politically intolerable loss of decision-making power over its fiscal policies (again read, austerity measures).
Greece, on the other hand, has already eaten humble pie, and taken it on the chin, by agreeing to a bailout that comes weighed down with imposed conditions and outside oversight, which translates into giving up a great deal of its economic self-determination to lenders in exchange for assistance.
Enter Alexis Tsipras who, along with his party, Syriza, may win enough seats in Parliament on June 17 to form a government. Tsipras may not like the idea of Europeans dictating to Greeks on how to run their economy, or the image projected of Greece as a mendicant standing there with a begging bowl, asking for a handout from wealthier nations.
Should he, in a referendum, put forth the notion that his country should exit the euro zone, the odds are, given the angry mood that Greeks have been in recently, that this eastern Mediteranean country will return to the dracma. Not a wise move, to be sure, since Greeks would end up losing roughly two thirds of the value of their savings and assets, but it might be a move aimed at restoring Greek national honor. It will not be the first time that nations have bartered away wealth to maintain national dignity.
