WASHINGTON POST COLUMN: …First, Greece’s economy is tiny, about 1.8 percent of the entire euro zone (the 19 countries using the euro), according to Jacob Kirkegaard of the Peterson Institute. This means that even if Greece’s economy sinks further — almost a certainty — the lost exports for other countries will be small. All U.S. exports to Greece amount to a few thousandths of 1 percent of the U.S. economy (gross domestic product), Kirkegaard noted. Even Germany’s exports to Greece total only 0.2 percent of its GDP.
Second, the danger of “contagion” — the spreading of the crisis through losses to banks and investors — has diminished. Contagion is more likely when a crisis “takes investors and government by surprise,” testified Harvard’s Carmen Reinhart. “There is no surprise here.” Precisely. Greece’s problems are no secret. Precautions have been taken. In 2010, most Greek government debt was held by banks and private investors. That’s no longer true. Banks and investors have absorbed losses or been bailed out by the European Central Bank (ECB), International Monetary Fund and other euro-zone countries. These lenders now hold about 85 percent of Greece’s debt.
Third, Europe is better prepared to handle a crisis now than earlier, said Desmond Lachman of the American Enterprise Institute. If Greece defaults, other countries with high debts and weak economies — say, Portugal or Italy — might find it harder to borrow. To counter this possibility, Europe now has the European Stability Mechanism, which could lend vulnerable countries 500 billion euros (about $560 billion). In addition, the ECB has indicated that it would lend aggressively to protect the euro from panics and bank runs… (more)
