Greece could decide fate of U.S. economy

Page last updated at 14:20 GMT, Sunday, May 27, 2012 - 19:20 EST

Philadelphia Inquirer:

Signs advertising that each item of merchandise is on sale for 1 euro are seen in a discount shop in central Athens.

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Will Greece exit the eurozone? Hard to believe, but the answer to this question could determine the fate of the U.S. economy this year. Global investors have been driving stock prices down, as odds rise that Greece will quit the European currency union.

Greece is at loggerheads with Germany, the dominant European economy that dominates policy decisions for the continent. German leaders want the Greeks to get their financial house in order; i.e, to stop borrowing money and ultimately to repay the hundreds of billions of euros they owe. Most of those euros are owed to Germany.

Greeks recognize they have big financial problems, but argue they can’t be fixed anytime soon. The government spending cuts and tax increases they have adopted have plunged Greece’s economy into a depression on the scale of our Depression in the 1930s. Over one-fourth of all Greeks are unemployed, and things are getting worse.

Their economic pain is so bad that Greeks are thinking seriously about quitting the eurozone. Some are looking at what Argentina did about a decade ago, when that Latin American country rejected a similar dose of fiscal austerity, prescribed by the International Monetary Fund. Argentina defaulted on its debt and dramatically devalued its currency, and while the Argentine economy suffered badly for a while, it eventually found its footing and was growing strongly a few years later. Couldn’t Greece follow the same path?

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