John Thys/AFP/Getty Images
German Chancellor Angela Merkel (from far left), Greek Prime Minister George Papandreou, French President Nicolas Sarkozy and EU president Herman Van Rompuy at the European Union summit Thursday in Brussels. The European leaders focused on supporting debt-laden Greece and preventing contagion throughout the rest of the euro zone.
German Chancellor Angela Merkel (from far left), Greek Prime Minister George Papandreou, French President Nicolas Sarkozy and EU president Herman Van Rompuy at the European Union summit Thursday in Brussels. The European leaders focused on supporting debt-laden Greece and preventing contagion throughout the rest of the euro zone. John Thys/AFP/Getty Images
The debt crisis in Greece may seem remote to Americans, but experts say it could impact the financial recovery for the U.S. and the world.
The Greek financial woes were a top priority Thursday at a summit of European leaders seeking to calm fears over the debt problems in the euro zone, the 16 EU nations where the euro is the common currency.
Greece uses the euro, and investors' confidence in that normally strong currency has been shaken by the prospect that Athens could default on its debts. Europeans leaders, led by France and Germany, have agreed to a plan to come to the aid of Greece in an effort to quell concerns over the long-term health of the European economy.
European Union President Herman Van Rompuy told reporters in Brussels that the Greek government hasn't requested any financial support, but that euro zone members are ready to take coordinated action, if necessary, to protect their financial stability.
Top European leaders, including French President Nicholas Sarkozy and German Chancellor Angela Merkel, met with Greek Prime Minister George Papandreou to discuss Greece's plan for cutting its deficit over several years.
The Greek crisis has contributed to the general air of uncertainty in international financial markets, says economist Joseph Stiglitz. Greece is one of five euro zone countries now struggling with big national debts.
"The major implications are for Greece, Spain, Portugal, Italy and Ireland and therefore in some sense for all of Europe," says Stiglitz, a Nobel Prize-winning economist at Columbia University.
The problems in the euro zone could impact the U.S., too, Stiglitz says, especially if they dampen sales of U.S. exports to Europe.
The crisis began after last year's elections, when the new government discovered Greece was breaking euro zone rules that say a member country's debt must not exceed 3 percent of its gross domestic product. Greece's debt was a whopping 12.7 percent of GDP, and the new Greek government ministers claimed their predecessors had been lying about it.
The value of the euro has dropped against the dollar as the Greek crisis unfolded, from an average of $1.49 to the euro last November to around $1.38 on Wednesday. It has stabilized somewhat as currency markets saw signs that euro zone governments, led by Germany and France, were putting together an aid package that would help the Greek government avoid default.
Stiglitz stresses that he's not a doomsayer, and says he doesn't think Greece is in danger of defaulting on its debt. But, he says, there are two ways that the uncertainty over the crisis could affect the U.S.
One way America will be affected, Stiglitz says, is that the crisis is putting more pressure on countries all over the world to engage in deficit reduction. That means lower aggregate demand for goods and services of all kinds, including American goods and services, he says.
"One of the things we've been counting on to help our recovery is exports," Stiglitz says, and the crisis could affect exports in another way as well. If the euro weakens in relation to the dollar, U.S. goods will become far more expensive for Europeans, who likely will buy less.
Sebastian Mallaby, an economist at the Council on Foreign Relations, says he doesn't see any real threat to U.S. exports yet, but there is always a danger that market psychology could be undermined.
"Greece — here's a government that had way too much debt and now can't pay creditors. Can you think of any other governments that could be in the same position?" he asks.
That could describe the situation of many governments, including the U.S. But for now, the focus is on the euro zone countries that have come to be known as PIIGS, for Portugal, Italy, Ireland, Greece and Spain.
They are the countries where austerity measures are likely to bite the hardest, and where appetites for imported goods are likely to dry up.
So far, many American companies selling abroad are reluctant to make public predictions about what European markets may be like for them in the immediate future.
Caterpillar, the nation's biggest exporter of heavy equipment, declined to comment for this article. A company spokesman said it's too early to determine whether the European debt crisis will affect Caterpillar's business.
Joseph Dehner, an international business lawyer, says it has been easier in recent months to promote U.S. exports while the value of the euro was high in relation to the dollar.
Dehner is chairman of the international services group at Frost Brown Todd, a Louisville, Ky.-based law firm that advises several big U.S. companies that do business in Europe, including Ford and General Electric.
The debt crisis and confidence in the euro aren't real issues yet, he says, "but if this lasts for a few months, it will definitely be a big problem."