Greek Woes Spread

Repercussions from Greece’s financial troubles are affecting countries far from the Mediterranean. Not only are Spain and Italy struggling with the possibility that a Greek exit from the euro could doom their efforts to contain their own debt, Ireland worries that all it has done so far will be in vain. Farther afield, the possibility of contagion has caused growth in Asian economies to slow. Japan wrestles with its own fiscal woes, and “doomsday” scenarios induced by the Fukushima disaster are fueling capital flight.

Reuters reported Tuesday that thus far the eurozone’s efforts to contain the debt crisis are not stout enough to prevent the spread of bank runs from one country in the bloc to another. The lack of a strong enough backstop to stop such actions by depositors could threaten the entire eurozone and have repercussions far beyond the 17 nations that make it up.

Already, wealthy Greeks have begun to drain accounts and send funds to banks and investments they consider safer than Greece’s own. But they are not alone, as Italians and Spanish move their money beyond their countries’ borders. According to financial advisors, the main beneficiaries of these tactics are institutions in Geneva, London and Frankfurt.

“It’s been an ongoing process, but it certainly picked up pace a couple of weeks ago. We believe there is a continuous 2-to-3-year bank run by wire transfer,” Lorne Baring, managing director at B Capital, a Geneva-based pan-European wealth management firm, was quoted saying in the report. He added, “Where there is liquidity it is moving to the safest part of Europe and the perceived safest part of Europe is in the north … It’s a no-brainer.”

But not all of the northern eurozone is safe, if indeed any of it is. Ireland is watching the proceedings and dreading that a Greek exit could make all its suffering under strict austerity for naught. The country’s borrowing costs have already increased on both short- and long-term bonds.

Ian Martin, a supplier of first aid and hygiene products to Irish companies, had felt that the country’s economy was beginning to recharge. However, the threat of a Greek exit from the euro and the chaos that would ensue have him worried.

In the report, Martin said, “I think if there is a major crisis, people will literally stop spending money. That little bit of confidence that was coming back will be gone. It is the last thing we need, we have done as we’re told and we’re still not really coming out of it. It would really just be a further nail in the coffin.”

In a Bloomberg report on Tuesday, JPMorgan Chase estimated that a drop of a single percent in the economy of the eurozone would depress growth in other nations by 0.7%. Countries that export, from Britain to China, would see their business fall and Russia would see falling prices on commodities, including oil. Even though economists and analysts are still divided on the likelihood and possible timing of a Greek exit from the joint currency, China International Capital Corp. (CICC) economists said in a report last week that a Greek exit could drive China’s expansion down to 6.4% in 2012, from 2011’s 9.2%, should policymakers fail to take effective action and if international growth drops by just half as much as it did during the crisis of 2008-2009.

China sends 19% of its exports to the European Union. CICC projected that a Greek departure could mean a drop of 3.9% in exports this year, compared with an increase of 10% if Greece remains in the eurozone.