A look at Greece’s borrowing history shows that defaulting on debt obligations is nothing new for the country. Over the last two centuries, Greece has been in a state of default more than half the time. What’s different today is the interconnected nature of the global financial system. In the past, a default was a traumatic event for financial institutions with direct exposure, but it didn’t pose a threat to the rest of the world. Unfortunately, that’s no longer the case.

A Greek default would send shock waves through Europe’s banking system. Massive write-downs by banks are sure to be followed by even larger taxpayer-funded bailouts. Similar to the response to the subprime crisis, governments will argue that some institutions are simply too big to let fail.

But the cost of bailouts won’t be limited to Europe. A Greek default would start in Athens, but it wouldn’t be long before it’s felt in Paris, Berlin, New York and Toronto. In today’s intertwined financial markets, everyone has exposure to everyone else’s problems.

Consider your own seemingly sleepy neighborhood bank—it may not be as safe as you think. Its investment division may have entered into a swap agreement with a financial institution in Europe. That institution could have a Greek subsidiary that holds Greek bonds (soon to be worthless) as part of its banking reserves. A Greek default could force the subsidiary into bankruptcy, which would in turn blow up the balance sheet of the parent bank in France or Germany. Before you know it, Greece’s delinquent borrowing habits will end up rolling across the Atlantic and on to your bank’s doorstep.

The market volatility stemming from a Greek default might also torpedo the hedging strategies implemented by your bank’s proprietary trading desk. Just look at the $2-billion loss JP Morgan is now swallowing for evidence of how quickly a hedge book can go offside. And by no means is JP Morgan alone. Swiss-banking giant UBS took its own $2.3-billion hit last year after the market moved against the bets made by a rogue trader.

The proposed Volcker rule, which will restrict a bank’s trading activities, is a step towards restoring sanity to financial markets. In my new book, The End of Growth, I argue that resurrecting the principles laid out in the Glass-Steagall Act, which erected walls between deposit-taking institutions and investment banking, would be an even larger step.

The subprime crisis should have triggered regulatory changes designed to safeguard taxpayers from the need to continually bail out imprudent banks. It didn’t. If a Greek default comes with a silver lining, it may just be to galvanize regulators into taking action on reforms that are long overdue.

What Europe’s voters and its central bank are coming to recognize is that unremitting fiscal austerity measures are the wrong prescription for what ails the European economy. Instead of curbing budget deficits, they’re actually exacerbating the continent’s economic problems.

Economics textbooks will tell you that hiking taxes and implementing draconian spending cuts will lead to government’s running smaller deficits. But in practice, as we’re seeing across the eurozone right now, those measures can be self-defeating. Rather than helping to wrestle down budget deficits, brutal fiscal austerity measures are actually choking the life out of much of Europe’s economy. Since tax revenues are a function of economic activity, lifeless economies are making it that much harder for countries to stave off recession. In Greece, for instance, the budget deficit isn’t getting any smaller. The only thing austerity measures are shrinking is the country’s GDP.

Europe is mired in a quagmire of financial bailouts, budget deficits and austerity measures, bleak circumstances that have already fostered social upheaval and are now ushering in political change. As I argued in this space last week, sovereign debt defaults won’t be far behind. To avoid this fate, Europe has its hopes pinned on a single magic bullet—growth.

If a strong-enough economic recovery were to take hold, Europe could grow its way out of its huge fiscal deficits and save the monetary union from collapse. That’s a good plan in theory, but the complication facing Europe, and indeed the rest of the world, is that it takes a lot of energy to fuel robust economic growth. What’s more, the most important source of energy for the global economy is oil.

Consider the European economies in the worst shape: Portugal, Italy, Ireland, Greece and Spain. The cumulative national debt of these countries may as well be denominated in barrels of oil instead of euros, because millions of barrels of oil is what will be needed to get those economies growing again. Can those countries afford the cost of economic growth when oil is trading in the triple-digit range?

How much more fiscal punishment can the eurozone endure before countries start throwing in the towel? Without economic growth, there can be only one ending to Europe’s debt crisis. Default. Judging by the newly elected socialist politicians in Greece and France that eventuality is a lot closer than financial markets might think.

Just as people require food, economies require energy. The relationship is straightforward: economic growth is a function of energy consumption. With national economies around the world once again forced to pay more than $100 for every barrel of oil consumed, a critical question must be asked—what happens when the world’s most important source of energy becomes unaffordable?

A glance at the latest GDP numbers is already telling us the answer. Economic growth has downshifted into a much lower gear nearly everywhere you look. Europe is struggling to keep its head above water, North America is stagnating and even the hard-charging economies of the BRIC nations are starting to groan under the weight of high energy prices.

When the price of oil goes up, something has to give. Right now, the European Monetary Union looks to be the most imminent casualty. How much longer will Greece slavishly heed the demands of its creditors and impose punishing austerity measures with the only result being the continuing implosion of its economy? Will Spain be able to tighten its belt any further when a quarter of its labor force is already unemployed? The answers seem obvious. Without economic growth, neither country can service its debt. And growth just isn’t in the cards. The ground beneath the European Monetary Union has never been shakier. And as the Euro trembles, the stage is being set for a return of the drachma, escudo, peseta, Irish pound, and lira.

When we look across the Pacific we see that even China and India, the global economy’s principal engines of growth, can’t escape the toll exacted by high energy prices. When policy makers in Beijing tried to sustain double-digit economic growth, food and energy inflation quickly slammed on the brakes. The economies of China and India will soon struggle to grow at half the torrid pace of recent years. When that happens, the rest of the world will need to pay attention.

In a world where distance costs money, China will increasingly look to its own 1.3 billion consumers to drive economic growth. If China decides to focus on tapping the potential of its huge domestic market, rather than supplying cheap goods to faraway Wal-Marts, the economic balance of power will tilt decidedly eastward. What happens if the People’s Bank of China then decides that buying US treasuries is no longer a necessity? US taxpayers, for one, don’t want to find out. They’ll be left footing the bill for Washington’s budget deficit—currently at one and a quarter trillion.

In a world of triple-digit oil prices, the global economy will be very different from the one we’ve known. But that may not be such a bad thing. You can check out what a static economy looks like in my new book “The End of Growth”. You may be surprised what you find.

Good thing for those U.S. engineering companies there are no “Buy Canadian” provisions in oil sand contracts like there are “Buy American” provisions in U.S. federal procurement.  But U.S. oil companies may soon find a less hospitable political landscape north of the border. After Obama sandbagged TransCanada, and all the Alberta producers that were going to supply it, I wouldn’t want to be a U.S.  pipeline company looking for regulatory approval in Canada these days

When it comes to energy markets things can change in a hurry.  No doubt rainmakers in Calgary’s Petroleum Club are already starting to brush up on their Mandarin. How the goal posts have moved.

It wasn’t that long ago when I was chief economist at CIBC World Markets that Alberta government officials would tell me in no uncertain terms the province wasn’t looking for investment from state-owned oil companies.

Since then, China’s state owned refining company, Sinopec paid more than $4.5 billion for a 9% stake in Syncrude, the largest oil sand producer in the province. Similarly, State owned Petro China spent about $2 billion acquiring full control of the Mackay River project from Athabasca Oil Sands Corp..

State owned Chinese energy companies are not pouring billions of dollars into developing Alberta’s oil sands so more synthetic crude or bitumen can be sent to refineries in Cushing Oklahoma. While the sudden about turn by the Obama Administration may have been a rude awakening for some folks in Calgary’s Petroleum Club, in the end it only serves to reroute Canadian oil to where world markets will ultimately dictate that it flow.

Prime Minister Harper once remarked it was a no brainer for the Keystone XL pipeline to connect Alberta oil sand product to supply U.S. markets. Looking at geography, it is easy to understand the remark. But looking at where market growth will occur, the Prime Minister’s sentiments are misguided.

U.S. gasoline consumption continues to fall, and it is now down to the lowest levels in more than a decade. The future of the oil sands lies with the growth of oil demand in Asian markets, not in American ones. And that future, more than any regulatory decision in either the United States or Canada, will depend on the price of oil.

As I argued several years ago in my book, “Why Your World Is About To Get A Whole Lot Smaller”, triple digit oil prices will redefine our notion of an economic recovery because as soon as the global economy picks up, oil prices will quickly soar to levels that challenge growth.

Last year was a case in point. In the second full year of recovery from as deep a trough as any seen in the post-war period, oil prices once again rose swiftly to levels that, in the past, torpedoed economic growth.

Brent Crude, the world oil benchmark, averaged $111 per barrel. This cracked the previous record of an annual average high of $100 in 2008 – a peak subsequently followed by a huge global recession.

The North American benchmark, West Texas Intermediate (WTI), rose even more, increasing by 20% from its 2010 average price of $79. Even with the hefty discount that it traded to world oil prices throughout most of last year (at times over $20 per barrel), WTI still averaged just a shade under triple digit levels at $95/barrel last year.

Of course, there are always special factors to explain these price levels: the Libyan revolution, Iran’s threat to close the Strait of Hormuz, or an increasingly destabilized Iraq.

While all these events certainly pose credible threats to world oil production, they are, at the same time, background noise even if they dominate the front page.

The real story behind triple digit oil prices is not the threat of supply shocks, but the sheer, unrelenting rise in world oil demand.  Already closing in on 90 million barrels a day, the quick rebound in world oil consumption to new record highs demonstrates the global economy can’t grow without burning greater amounts of oil.

No matter how many rabbits the oil industry can pull out of its hat, be it tar sands from Alberta or shale oil from the Bakkens, supply just can’t seem to keep pace – at least not at the prices most consumers can afford to pay. That is the message that triple digit prices keeps telling us.

If the global economic expansion, troubled as it may be, continues, we will see even higher oil prices in 2012. But what does that say about the sustainability of growth?

And even if there is growth, what is the pace?