Peter Sharkey

One of Shakespeare’s most famous lines is uttered not by a powerful, well-known character, but by a lowly soothsayer who, in Act 1 of Julius Caesar, warns Caesar to “Beware the Ides of March.”

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Yet despite being a suspicious man, Caesar takes little heed of the soothsayer’s prescience and on March 15 is duly assassinated by a group of conspirators.

Today’s soothsayers are warning investors to be wary of events a few days after the Ides of March, for on March 20 it is widely expected that Greece, unable to repay a €14bn bond, will default on its debt, so accelerating its exit from Europe’s single currency.

Why does it matter that a country, which many economists have predicted will be forced to eventually leave the eurozone anyway, finally heads for the door?

We may believe – and even joke about – the fact that it probably doesn’t matter at all.

An American friend tells me of an ad currently running on a New York radio station selling car finance in which the salesman asks why a country with an economy the same size as Indiana (ie, Greece) is at the heart of a global economic meltdown.

“If Indiana said it had a debt problem,” he asks, “would world leaders be quaking in their boots? I don’t think so,” he concludes.

A prospective Greek default definitely does matter. For a start, it would heap even more pressure on other weak European economies as traders went ‘short’ on the euro, betting that countries such as Ireland and Portugal could also be forced to quit the eurozone.

Furthermore, relatively recent economic history tells us that the consequences of a default by a sovereign nation can be catastrophic.

Almost 30 years ago, Mexico warned the IMF that it could not repay its debts to foreign banks. Accordingly, between August-November 1982, an agreement was reached whereby the IMF and another collection of foreign banks provided Mexico with loans to pay off part of its debt.

In return, they demanded a belt-tightening programme that would allow the country to eventually repay its fresh borrowing.

By 1983 however, Mexico’s economy had sunk further into depression as unemployment soared, and up to 12pc of the country’s GNP went on paying interest to creditors.

But Mexico was not alone. Brazil, Argentina and Poland were so deeply mired in debt that they too had to come to an arrangement with the IMF who demanded cuts in government spending, a reduction in money supply and public sector pay.

It wasn’t long before riots erupted in Brazil and Argentina, which exacerbated the problem. Debtor nations across Latin America and elsewhere suffered rising unemployment and stagnation partly due to their collective reluctance to implement the IMF’s conditions and because the flow of lending came to an abrupt halt when international banks did not receive agreed interest payments.

Finally, when a group of Latin American countries did default, nine American banks went bust.

Today, many bankers are biting their nails when they consider their exposure to Greece, Portugal, Ireland and other nations, because if one nation defaults, the resultant ‘domino effect’ could be devastating – as any soothsayer would tell you.