You should—and shouldn't—worry about the Greek debt crisis.
Posted Tuesday, May 25, 2010, at 6:30 PM ET
It's difficult to get comfortable with this recovery, isn't it? In April, the economy finally started to create jobs at a decent pace. But now problems in Europe, some of which are eerily reminiscent of the credit debacle that laid the United States low in 2008, are threatening to tank U.S. stock markets and the economy at large. While there's reason to be concerned, there's little reason to panic. The troubles in Europe bring some short-term good news for the United States—and not just the humbling of French President Nicolas Sarkozy, who as recently as January prattled on about the demise of U.S. economic leadership. And there is some potential bad news.
The trouble in Europe started in the government bond markets. As deficits and funding demands mounted, Greece, Spain, and Portugal lost the confidence of investors. Credit markets suddenly ceased to believe that these nations could get their financial houses in order. In exchange for assistance from the European Central Bank and the International Monetary Fund, Greece agreed to cut spending and raise taxes. Spain and Portugal are following suit. The ECB is running an expansionary monetary policy, but many of the European Union's member states are now running seriously contractionary fiscal policies. The result: Economic growth in continental Europe just hit a wall.
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