This column is not about good news.
Some months ago, while discussing Europe's financial problems, I asked the German ambassador if the Euro (the common European currency) would survive. "Yes," he said, "because everyone wants it to. But it will be hard." That now looks optimistic.
Why do we care? Because in this global economy, what happens in Europe affects us as well. Eurozone nations comprise more that 20 percent of the world's economy and are the source of more than half of the money U.S. corporations earn overseas. A major hit to Europe's prospects would put an additional burden on our own.
The trigger for Europe's problems has been, and still is, Greece. It is one of Europe's smaller countries but its most heavily indebted. Greek leaders have been scrambling to install austerity measures to deal with its debt, which are long overdue, but the resulting slowdown in the Greek economy has been more severe than anticipated. Financial markets have responded by pushing interest rates on Greek debt to record highs, indicating that the market has already decided that a default is coming.
Earlier in the year, European financial institutions and countries worked to make sure that there would be no such default by putting together various rescue packages. Several times we have read that "the Greek problem has been dealt with," or that "the financial difficulties of Greece have been contained." There are no such optimistic comments in the papers now. Odds are at least 50-50 that Greece will have to default on its debt, drop out of the Eurozone and reissue its own currency.
This might appear to be a minor event — again, Greece is very small country compared to Europe as a whole — but a national default of this scale is unprecedented and there is no way of knowing what the consequences would be. However, there are signs.
Portugal and Ireland are candidates for the title of "the next Greece," with Spain and Italy not far behind. A Greek collapse would certainly initiate a "testing" of the economic viability of these nations by investors and financial organizations; if any one of them followed Greece into default that could set off a chain reaction that would destroy the Euro and leave all of the world's financial markets tossing about in a sea of uncertainty.
America and its banks would be affected. They are not heavily invested in Greek financial instruments, but they do have significant exposure in Spain and Ireland, where many American companies have plants. A recent analysis published by Joe Quinlan, Transatlantic Fellow at the German Marshall Fund, says, " … even if the U.S. financial sector somehow managed to insulate itself from the risk of financial contagion, the impact of corporate America would be severe. … The fallout from a Greek default, the risks of the Eurozone disintegrating, the systemic risks of a European banking crisis, the aftershocks to the U.S. economy — any or all of these events could ultimately prove catastrophic for an already fragile transatlantic economy."
Just what we need when our own economy is sputtering badly.
Is there anything we can do?
Unfortunately, not much. The Federal Reserve is already taking what actions it can, and Secretary Tim Geitner is working with his European counterparts to prevent the worst. However, America cannot and should not bail out Greece. This is a European problem that they must solve themselves. The best we can do is pay attention, stay informed, protect American assets where possible and pray for a better outcome than now appears to be in the offing.
Robert Bennett, former U.S. Senator from Utah, is a part-time teacher, researcher and lecturer at the University of Utah's Hinckley Institute of Politics.