Greece has run off the cliff and is hanging in the air

Readers of a certain age will remember the good old Hollywood cartoons, before heart-shaped faces and dewy oriental eyes became the fashionable look. I'm thinking of sagas such as that of the Coyote and the Roadrunner, the ones where a character runs off the edge of a cliff, hangs in the air for a comically stupefied second, and then plummets.

Well, I have a name for the creature with the silly grin on its face, legs pumping furiously in thin air. It's called the euro.

Regular readers may recall that I predicted a nasty period for the euro at the beginning of the year.

The basket cases then seemed to be Ireland, Greece, Portugal and, to a lesser extent, Italy. The Irish have moved on, and are suffering badly. The hangover of cheap credit has produced significant inflation, which is now being paid for in public service cuts and unemployment. The Portuguese limp on. The Italians?

Well, there's a major cash economy (undeclared income, etc) which seems to be cushioning the effects of what ought to be a nasty financial fall.

But that's only the case if you go by the official figures.

Greece, however, is having a very public and unpleasant nervous breakdown. As I predicted, the implementation of the measures that the European Union has required have proved to be very unpopular indeed.

Greece's attempts to return to the fold of the financially prudent have generated huge social unrest. The stories and the pictures from that country make for an unsettling mix. Greece's public services and transport have simply come to a halt. A third general strike this year has been called in protest against the government's Europe-imposed austerity measures.

Thousands are stranded at Athens airport; schools are closed and the Greek health service is teetering on the edge of total collapse. Greece may be the cradle of Western civilisation, but if you want an early grave it's the place to be seriously ill.

The police have been involved in violent altercations with strikers. The smell of teargas, so redolent of social unrest, is in the air. The Athens administration is taking an emollient, slightly xenophobic line. On the one hand it says it sympathises with the workers' anger, and blames all on Brussels. On the other, the Greek Government says it will keep its tax rises and wage cuts.

Business leaders have taken the strongest lime, arguing that the strikers are effectively trying to ruin the country's finances.

But the finances are already almost beyond repair. Greece has a huge and increasing public deficit of 12.7 per cent of gross domestic product. This is more than four times greater than Eurozone rules permit.

Germany, the power behind the European throne, hasn't helped matters. The German Government is blameless in the affair – unless you count taking a firm stand on budgetary control.

But the German media has been rather cheekily suggesting that the Greeks give up some of their ancient treasures and even an island or two as asset payment for the billions in subsidy – and subsidy it undoubtedly is – that the European institutions are throwing at Athens.

So this is the moment – the instant when the cartoon character has overrun the cliff edge, but is still hanging there, pedalling furiously with no purchase on anything but the air.

Deals of all sorts are being struck behind the scenes. Every favour imaginable is being called in the incestuous world of the international capital markets, but the fact is that Greece's credit rating is severely damaged.

Analysts fear that the country will default, that the euro-denominated sovereign debt will fail, and that the contagion will spread to the entire Eurozone.

The only nation that can truly prevent this happening is Germany. Not because Germany is in such great financial shape itself, but because the country has a reputation for good financial order.

- Martin Baker is a journalist, author and commentator on international business affairs

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