Greece Goes South

The lead article in today’s New York Times, titled “Financial Fears Grow in Europe Over Greek Debt,” describes the downgrading of Greek bonds to junk level by a major rating organization. As a result, anxiety grew about two other European countries as well, Portugal and Spain, and a widespread decline in stock markets ensued in both Europe and the United States.

A proposed rescue package from Europe and the International Monetary Fund (IMF) is widely viewed as too little, too late. The amount, 45 billion euros, is viewed as half of what’s needed, and some economists say that Greece will need as much as 200 billion euros over the next three years. Meanwhile, Germany is complaining that Greece needs to take more austerity measures, and Greece is facing strikes from transportation workers from the austerity measures it has already taken.

One of the problems is that individual countries are unable to print more of their own currency to stimulate the economy, as the United States has done, because the euro is a multi-country currency. And the fallout for Portugal and Spain is significant as well. The article warns that Spain is particularly frightening because the size of its economy dwarfs Greece and Portugal.

And the U.S. Dow Jones declined significantly on the news, showing that these events matter here as well and affect our economy, too. The frustration is all the worse as we try to get our own house in order.