What a Greek Default Could Mean for You (in English)
Your savings and investments could be hurt by a Greek default.
June 16, 2011— -- Greece, a small nation in southern Europe, is having an outsize impact on the U.S. economy amid fears among investors that Greece might default on its debt.
The news comes just as the U.S. is seeing some positive signs regarding unemployment benefits and mortgage payment rates.
Fewer Americans applied for jobless benefits in the past three weeks, and more have stayed current on their mortgage payments than at any time since 2006, before the nationwide housing crisis spurred the great recession.
This indicatees that the U.S. economy is recovering, albeit slowly, even as problems in Europe continue to cool the stock market.
The problems in Greece could lead to these probable outcomes:
Already, Greeks are rioting in the streets and tossing petrol bombs at riot police. They are protesting austerity measures their government has tried to impose as it works to solve its country's debt crisis. Prime Minister George Papandreou has so far failed to put together a cross-party coalition that could come up with a plan to combat the debt.
The reality is, Greece will need financial support from other European countries to get out of the hole it has dug for itself.
Congress is having enough difficulty resolving the U.S. debt burden, so imagine trying to reach consensus among representatives of different countries with vastly different political majorities and cultures to save a foreign economy that has been severely mismanaged.
"Greece has defaulted already," Richard Bove, an analyst at Rochdale Research, told ABC News. "We are arguing about how we are going to handle this default in a way that is least destructive to bank balance sheets."
Although U.S. businesses, even banks, are not severely exposed to Greece's economy, investors worry that if Greece defaults on its debt and leaves investors such as Greek bond holders out in the cold, financial trouble would spread to other troubled European economies, such as Spain's, Portugal's and Ireland's. If the European economy were to implode in a wave of defaults and associated bank failures, it could pull the U.S. economy down as well, since there is a lot of trade between the U.S. and Europe.
"Large European banks are very intertwined with American banks," said Bove. The question becomes, in the worst case scenario -- a wave of defaults -- "Will these banks be able to absorb a number of defaults from a number of countries?"
Large country defaults have happened before. Argentina defaulted on part of its external debt in 2002, leading to a decade of economic turmoil for that country. Following the default, Argentina received a crucial loan from the International Monetary Fund in 2003 and restructured its massive debt. Today, Argentina is the third largest economy in Latin America.
Next week, European leaders will convene a summit to attempt to deal with the crisis, and another meeting is set for July 11.
Europe has far more money as a whole than Latin America, so perhaps it can avoid the worst case scenario for Greece, and help save their own skins, and ours too.
ABC News' Zunaira Zaki contributed to this article.
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