Liam Dann: Greek climax judgment day for Bill's zero Budget

While New Zealanders focus on the Government's domestic tinkering, the European crisis has lurched on towards an epic final act. The climax of the Greek meltdown - already putting a dampener on global growth - poses the biggest threat to Bill English's "steady as she goes" policy.

If Europe falls to pieces then the Government will be forced to look to a Plan B - and quickly.

It would be interesting to know what that is and whether there is actually a contingency plan in place.

It is more than two years since The Economist first used the headline "Acropolis Now" to describe the Greek economy.

That's two years of crisis talks and last minute bailout deals, two years of financial misery and uncertainty for the Greek people. And two years of a European crisis dampening the frail recovery of a global economy already laid low by the American market collapse.

European leaders yesterday emerged from yet another crisis meeting talking up Greek prospects of staying in the eurozone.

Markets rallied in a half-hearted sort of way after new Italian Prime Minister Mario Monti said he expected Greece to stay. He hinted that some of the demands made of Greece by the EU were unrealistic.

Euro leaders don't have much choice but to cut Greece a break. The budget cuts for a bailout deal that had previously been presented with non-negotiable deadlines must surely be looked at again.

The people of Greece have called Europe's bluff and it has become apparent that their exit is of more concern for the rest of Europe than it is for Greece - which does not have much left to lose.

The second Greek election, scheduled for June 17, has become a referendum on whether to stay or go.

A Greek exit could bring financial chaos and push other struggling economies like Spain and Ireland to the brink. And if the Greek economy emerges with any semblance of life from the process, it might inspire those others to follow suit.

That would spell the end of the European Union as we know it and usher in another period of serious global economic turmoil.

If the Greek people decide they want out and vote the balance of power to the popular Marxist leader Alexis Tsipras, then there is little anyone can do. We will have to sit back and watch history unfold as global growth collapses for the second time in four years.

Even in the more likely scenario that the Greek people get cold feet and elect a more moderate parliament, there is no hope of hitting EU deadlines as they stand.

In order to qualify for the next round of the bailout money, the Greek Government is expected to push through another €11.5 billion ($19 billion) of cuts by June 30.

You can bet, despite all the tough talk, that Euro leaders will bend over backwards to keep Greece in the fold.

The iron-willed German chancellor Angela Merkel is going to have to soften her stance to buy some more time for Europe.

At that point New Zealand and Bill English may be able to breath a sigh of temporary relief.

English needs this global recovery to stick - even at its most tepid - for his long game to pay off.

The numbers he and the Treasury are running already include forecasts which many consider overly optimistic. That rose glow will only look less realistic the longer and further commodity prices for New Zealand exports fall.

Adding to that global risk for commodities is the slowing of the Chinese growth. The Government there is trying to bring growth down from 9 per cent to more like 7.5 per cent this year.

Initially nobody thought China could hit that target, but with the damage that Europe has already done to global demand this year it is looking more likely. A bigger and messier European crisis could see Chinese growth decelerate further than anyone expected.

That would really upset world markets and the big losers would be those economies dependent on commodity exports - including Australia and New Zealand.

So when the final analysis of the 2012 Budget is done and the history is written, it won't be the finer details that it is judged on. It will be measured by how it matches to global economic conditions.

Let's hope that the rest of the world still allows us the luxury of this moderate course by the time the next one rolls around.

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