Last year, Germany’s Chancellor Angela Merkel warned: “Nobody should believe that another half-century of peace in Europe is a given. If the euro collapses, Europe collapses. That can’t happen.” But there is now a risk that the euro, the 10-year-old common European currency, might indeed collapse. The trigger could turn out to be last weekend’s election in Greece.

New Democracy and PASOK, the centre-right and centre-left parties that have alternated in power since democracy returned to Greece in 1974, were abandoned by voters in revolt against the savage austerity measures that those parties had accepted in order to keep the country in the euro. The beneficiaries were radical parties of the extreme right and left.

Most shocking was the rise of the neo-fascist Golden Dawn party. Its shaven-headed street-fighters give the Nazi salute and systematically attack immigrants on the streets — and it got seven per cent of the vote. Golden Dawn, together with two other ultra-nationalist parties that are equally hostile to immigrants, the euro and indeed the European Union itself, got the votes of one Greek in five.

Even more Greeks backed the hard-left parties which also reject the deal with the EU and the International Monetary Fund that gave Athens enough money (174bn euros — $225bn) to go on paying its immense debts. The price was brutal cuts in domestic spending in Greece, and the voters revolted against it.

Greek incomes have fallen sharply and one-quarter of the workforce is unemployed. It’s not a recession in Greece, it’s a full-blown depression, and Greek voters don’t want to hear about how massive foreign borrowing and corruption at home got them into this mess. They just want it to stop.

The main target for their ire is the deal that forced this austerity on Greece, and the chief victims have been the two traditionally dominant centrist parties that signed it. Between them, three years ago, they got almost 80 per cent of the vote. This time they got just over 30 per cent. The missing 50 per cent mostly went to parties of the extreme right or radical left that reject the deal.

Those parties are too far apart on other issues to form a government in Athens with majority support in parliament, so there will probably be another election in June. If no coalition that will abide by the deal comes out of that election, then the EU will halt its financial aid to Greece — and when the next big payment on the country’s debt falls due at the end of June, Greece will default.

This raises two questions. What will happen to Greece if it defaults on its debts and crashes out of the euro? More importantly, what will then happen to the common currency, and to the European Union itself?

Countries that default on their debts have a very hard time. When Argentina defaulted in 2001, there was a 60 per cent fall in domestic consumption. Bank accounts were frozen, supermarkets emptied, and imported goods disappeared from the market. Inflation soared, jobs disappeared, and by 2003 more than half the population was living below the poverty line.

On the other hand, Greece is experiencing a good deal of this misery already. Unemployment is as bad as Argentina’s was at its worst. But in a few years, freed from its burden of debt, Argentina’s economy took off. Foreign banks started lending to it again, and for nine years now its GDP has grown at around eight per cent a year.

Many Greek voters think they can renegotiate the deal with the EU and stay in the euro. That is almost certainly untrue. But in the end default may turn out to be better for them than staying in the euro and suffering endless austerity while trying to pay off an impossible load of debt.

The bigger question is: what happens to the euro if Greece leaves? The common currency was conceived as a vehicle for achieving the ‘ever closer union’ that most EU politicians used to orate about, but that was putting the cart before the horse. Without a single authority that can enforce the necessary fiscal and budgetary disciplines, such a currency is bound to fail.

Last Monday, Jacques Attali, the former adviser to the late French president, François Mitterand, said that the euro will not last five more years “unless there is a single European state”. He’s probably right, but there is obviously not going to be a single European state in five years’ time.

Therefore, by Attali’s own logic, the euro as we know it is doomed. But Angela Merkel is probably wrong: that is unlikely to spell the end of the European Union itself. The EU survived perfectly well for 40 years without a single currency.