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Does Greece Matter?

I've been kind of puzzled by all the fuss over Greece's debt troubles. I get that the situation is bad (see this cartoon.) But I don't really get how it could become global.

Here's an editorial today from the Greek newspaper, Kathimerini.

The Greek economy accounts for less than 3 percent of that of the EU. Whatever happens — even if Greece were to sink without a trace — the European economy would hardly notice the difference.

And this, from the WSJ today, quoting Aaron Gurwitz, head of global investment strategy for Barclays Wealth

The California situation is much more important than Greece," he says. Greece comprises about 2% of Europe's gross domestic product, while California—struggling to pay its debts—represents more than 10% of the U.S. economy, he says. "Yet nobody's talking about California," he says.

The Kathimerini editorial makes the case that this is really a moral hazard issue. If the EU helps Greece, other countries might take more risks. ("Well, Greece got bailed out...")

When you think about it the EU is a strange hybrid. There's one central bank controlling the money supply. But Greece and the other countries have their own sometimes divergent politics, budgets, fiscal policy.

Which I guess isn't all that different from California's situation in the U.S.