Greece’s debt crisis threatens more than the collapse of the euro and the European Union – it would also be a climate disaster
GREECE is going to default, one way or another, that much is clear. The bigger question is whether it will also leave the euro and what that would mean. What is so far underappreciated is that a Greek exit would have appalling consequences for the climate.
Just three months after a second bailout, Greece is failing to deliver its end of the bargain and bond markets are signalling that it will not repay all its debt. The International Monetary Fund, the European Union and the European Central Bank are struggling to deliver a third rescue package.
Even if that succeeds, the wild card remains Greek politics. The country is wracked with strikes, riots and protests. Deep cuts to jobs, wages and pensions were passed by a slender majority, and it would not take much of a political shift for Greece to abandon its debts – and the euro.
Departure would be economic suicide, though. Paul Donovan, a London-based economist at UBS investment bank, calculates the Greek economy would shrink by half in the first year. Moreover, a Greek exit would likely trigger a domino effect. Ireland, Portugal, Spain and even Italy could go too. It would be a short step to the break-up of the euro and a continent-wide credit crunch.
The climate always takes a back seat when economies turn sour, but the impact of a euro break-up would be profound. Any country leaving the euro would also breach the treaties of Maastricht, Lisbon and Rome, and therefore be forced to leave the EU. A euro break-up is likely to shatter the EU, and with it the hard won architecture of climate policy.
For a start, the Emissions Trading System would be unlikely to survive. True, the ETS has been widely criticised as ineffectual, but the system at least imposes an international framework which could be strengthened and expanded. That would all be swept away, along with any obligation for countries to deliver their 2020 targets on emissions, renewables and energy efficiency.
On one level that matters little. Given the scale of the likely economic collapse, emissions would fall far below the targets and could stay low for years. The collapse of the EU, so long in the vanguard of climate policy, could ironically be seen as a desirable outcome. In fact, nothing could be further from the truth. Emissions might fall dramatically, but so would our ability to do anything about the remainder.
The Intergovernmental Panel on Climate Change says holding global temperature increase to 2 °C means cutting emissions by up to 85 per cent by 2050. That would require an investment of $18 trillion by 2035, according to the International Energy Agency. It is hard to imagine governments in the midst of a depression mobilising anything like enough money or political will.
There is much more riding on the outcome of the Greek crisis than the future of Europe or even the world economy. The danger is that a euro collapse could destroy the capital and institutions needed to combat climate change.
It is bitterly ironic that the meltdown of a minor economy that has little to sell but sunshine could condemn the planet to uncontrollable global warming.
David Strahan is a former BBC business correspondent and author of The Last Oil Shock (John Murray, 2008)