The alternative could be staggering for the U.S. economy. American banks and other companies could find themselves battling with any country that leaves the euro union and reinstates its own currency.
“The risk is likely paralysis,” said Michael Hood, a market strategist at J.P. Morgan Asset Management. “You won’t even know what people owe you.”
The summit this week is the latest in a long series of meetings convened to deal with problems that have expanded from concern about Greece’s high levels of government debt into a full-fledged threat to the euro union.
Although a solution has eluded them for two years, European officials insist that the worst-case outcome — an exit by one or more countries from the euro zone — will be avoided.
But a steady erosion of confidence in European leadership and the failure of previous crisis plans has made a once-taboo topic part of the mainstream discussion. Leaders now speak openly of the stakes, and German Chancellor Angela Merkel and French President Nicolas Sarkozy said Monday that they will push for wide-ranging changes in Europe’s basic treaties to help ensure that the currency union remains intact.
Analysts, meanwhile, are looking at different scenarios and sketching out the implications.
An exit by Greece alone could probably be stage-managed with help from the International Monetary Fund and the rest of the euro zone without much global fallout, according to a recent analysis by ING financial markets research chief Mark Cliffe.
Banks, companies and private investors have in a sense been preparing for that possibility for several months by pulling money out of the Greek banking system, liquidating investments and selling off Greek bonds at fire-sale prices. That has intensified Greece’s problems in the short term, but it also means that the world has less at risk in that country today than at the start of the crisis and could more easily cope if Greece left the euro zone.
Some analysts even advocate that Athens give up the euro as a way to help the country recover. Reintroducing the old currency, the drachma, would make Greek exports and investments cheaper and give the country control over monetary policy that is currently in the hands of the Germany-based European Central Bank.
According to data from the Bank for International Settlements in Switzerland, U.S. banks have less than $100 billion at risk in Greece, and only $4.7 billion in the government bond and bank investments that would be considered the most vulnerable to losses as a result of the crisis.