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March 31, 2010

The Greek problem

Economic problems in Greece have topped financial headlines in recent weeks. What's happening, and why is it a big deal?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Greece as a country ... is in danger of defaulting on its bonds. Translated, it is in essence going bankrupt. It borrowed a lot of money. It spent a lot of money. And the recession has obviously reduced their tax revenues.

"Now if in the old days Greece is a country, and of course we love Greece but it is a small country and if they have their own little economy there a lot of people wouldn't think twice about this.

"But the issue today is Greece is now a part of the European community -- most of western and central Europe -- and they use the common currency of that European community, the euro. And so the problems in Greece are affecting a much wider geographical area -- i.e., it is affecting that European community, which we are talking about an economy of over 300 million people.

"Many of those European banks have invested, bought those great bonds. And because Greece is tied to the euro, investors are worried about the euro, the stability of the euro and in fact the euro's value has gone down.

"And then on top of this you have the fact that there are some other European countries that are not quite as bad as Greece, but they are close to it: Portugal, Ireland and Spain.

"And so you have a situation where you have got some strong fiscal problems in Greece. And how it might affect you and me is if Europe as a whole as a market falters and either the recession gets worse or they have very slow economic growth, they are still a major trading partner of ours. And that could affect the steam in our economic engine."

Posted by deeshore at March 31, 2010 08:23 AM