For U.S. Investors, Greece Matters More Than You Might Think

A woman walks by the pantheon in Greece where a new bailout plan may help the debt-plagued nation stabilize.
A woman walks by the pantheon in Greece where a new bailout plan may help the debt-plagued nation stabilize.

It appears European leaders and the International Monetary Fund have agreed on a plan to help debt-plagued Greece. When combined with Greece's budget cuts and tax hikes, the plan makes it more likely that the Mediterranean nation's fiscal situation will stabilize, avoiding default and insolvency.

Now, many investors may ask, "Why should I care about Greece? No impact on my life." Whoa. Bad move. There would be serious economic implications if the Greek crisis were to persist.

To begin with, Europe's growth may be hurt by a lack of fiscal stabilization in Greece, which would undoubtedly hurt U.S. exports to the region. Europe, as a whole, is the U.S.'s largest trade partner -- we trade more with Europe than with Canada or Mexico. In a very real way, lost business in Europe could mean lost jobs in the United States.

Why It's Not All Greek to Us

Second, a failure to resolve the Greek crisis would decrease investor confidence in the euro-zone to solve its own problems, in general, and in the euro currency, in specifically. Investors, particularly institutional investors, would undoubtedly continue to flee the euro into safer currency, especially the dollar. (The euro has already fallen about 7% versus the dollar this year.)

Net result: U.S. exports would become more expensive to European buyers, making them less competitive. Given that the U.S. is counting on its exports to comprise a larger portion of U.S. gross domestic product growth due to the "frugal consumer" trend at home, the substantially higher dollar is not what the U.S. wants to see right now.

Third, if unresolved, there is the small chance that the Greek chapter could lead to contagion -- another default-and-ripple-effect, not as big as Lehman Brothers, of course, but destructive nonetheless. Given that credit markets are still healing from the global financial crisis, it would be counterproductive for the major powers of the world -- not just the powers of Europe -- to allow any risk of another "Saturday night surprise."

Credit Markets Could Be At Risk

No policy maker or business executive wants to see another, massive retreat from both government and corporate debt, accompanied by banker mistrust, fear and all the other zaniness that nearly froze credit markets during the global financial crisis's acute stage in the fall of 2008.

In sum, the U.S. economy is not insulated from Greece's problems. If Europe's GDP is hurt, U.S. GDP growth will take a hit, as well. So when someone says the U.S. should not be concerned about Greece, cite the above.

Of course, the above is not likely to stop the likes of Rush Limbaugh and Glenn Beck from offering their observations on the Greece chapter. One can see Limbaugh and Beck chiming in now. Why should the U.S. care about Greece? Let Greece go bankrupt, they might argue. They overspent, they deserve to go bankrupt. It serves them right, their thinking might go. Greece isn't adding value. What did Greece ever contribute to civilization, philosophy and democracy?

Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.