Keeping Greece afloat a major test for Euro

A western European country has not defaulted on its debt since the Second World War, so the implications of any such eventuality would be momentous. The risk of just such a contagious sovereign debt crisis has been increasing, however, as Greece attempts to grapple with its perilous economic state. But far from being an event in a distant country that doesn't affect us here in Ireland, this is something that has implications for us all thanks to our membership of the eurozone. It's a situation that continues to reverberate far beyond the shores of the Mediterranean country as weeks of uncertainty about the Greeks' ability to tackle their massive debt pile has driven up the country's borrowing costs to an unsustainable level. However, the concern being expressed in European capitals since last week has not been so much to do with the sticky mess the Greeks find themselves but the threat of contagion and the real risk that other, weaker eurozone economies may follow, a situation that would threaten to derail the entire single currency project. A European aid package to bail out Athens - to which Ireland is contributing €500 million - is to be bolstered to the tune of several more billions of euro by the International Monetary Fund (IMF), bringing it to a total of about €45bn. That will be enough to keep the wolves from Athens' door for 15 months or so. And, like what has happened in this country, prime minister George Papandreou must implement a severe austerity package that will undoubtedly bring tens of thousands more people onto the streets of the capital to protest at the harsh measures needed to stabilise the country's finances. Unlike Ireland, however, which has seen the same party in government here since the mid-1990s, Mr Papandreou is blaming the previous administration for landing him in the current mire and has railed against the last government for its "incomprehensible mistakes, omissions, criminal decisions and storm of problems" - though that is a quote that many in Ireland would apply to the mismanagement of our own economy over the past decade. Greece, however, is in more trouble than Ireland because it deliberately concealed the true extent of its debt problems from the EU and falsified data on its public finances. Now Europe's big economies, France and Germany, are saying they need to see big sacrifices from Greece in return for economic rescue but there are fears that even the Brussels cavalry riding to the rescue may not be enough to stop contagion in the euro. Concern is centred on other debt-laden nations like Portugal, Italy and Spain which may also have trouble coping with their public debt. Ireland, thanks to its Anglo Irish Bank financial injection now being added to the national debt, is now being lumped in with the other debt-reliant eurozone members after enjoying a period outside the sin bin. However, what matters now is that the EU and IMF get full agreement to activate its emergency loan to Greece, overcoming resistence in Germany in particular, and allowing money to flow in order to calm the bond markets which have been causing so much trouble for Greece. Germany is reluctant to release funds for Greece until the nation has a "sustainable" plan to reduce its budget shortfall. Meanwhile, credit-default swaps on European sovereign debt surged to record highs this week on concern that Greece's fiscal crisis is starting to hurt the borrowing ability of other indebted nations throughout the region. If the rot spreads to somewhere like Spain, which has also seen its bond yields rise again this week, it will trigger a serious crisis for the euro as the domino effect spreads across the continent. That is the last thing Europe needs as it struggles to shake off the vestiges of a recession that has battered the continent for the last three years.