NEW YORK -- The United States may benefit if Greece defaults when its latest loan payment is due on Tuesday, as this may set the stage for a permanent solution to the country’s debt crisis, some economists believe.
The White House on Monday signaled its support for European creditors, who demanded that Greece enact stricter austerity measures if it wants access to another tranche of its bailout fund. Without it, Greece cannot pay back the $1.73 billion owed on Tuesday to the International Monetary Fund. Greece now awaits a July 5 referendum on the new bailout measures.
But although a Greek default carries some near-term risks for the U.S., such a move may actually help Greece broker a deal that with time would lift its depressed economy.
“If they vote yes, it just postpones the day of reckoning,” Mark Weisbrot, co-director of the nonprofit Center for Economic and Policy Research, told HuffPost. “The debt is unsustainable and the austerity is making the debt burden worse by pushing the Greek economy back into recession.”
If Greece acquiesced to European demands, prompting creditors to release funds to pay back the debt due on Tuesday, it would serve as little more than a Band-Aid. European instability would continue, Weisbrot said.
“The instability of the eurozone as it fails to resolves this and the inability of Greece to grow its way out of the problem -- all of those things will affect us,” he said.
His comments echoed sentiments shared by other left-leaning economists, such as Nobel laureates Paul Krugman and Joseph Stiglitz.
Greece’s economic woes don’t have a direct result on U.S. trade. For the most part, Greece is a relatively small trading partner. Last year, Greece purchased $773.2 million in goods from the U.S. The U.S. imported $1.05 billion from Greece, according to the United States Census Bureau. By contrast, the U.S. imported $53.9 billion from the United Kingdom last year, and exported $54.4 billion to the country.
But a Greek default -- which could lead to an exit from the single-currency eurozone or, more dramatically, from the European Union -- could rile global credit markets. This could cause interest rates to spike.
“Obviously a default can lead to large spikes in interest rates, as investors want protection against that potential in other loans that they make,” Weisbrot said. “But the likelihood of that is somewhat diminished because, at this point, so much of the debt is publicly held.”
Roughly 80 percent of Greece’s debt is held by the so-called “troika” -- the European Union, European Central Bank and the IMF -- the trio of public institutions that bailed out Greece in 2010, according to the economics site EconoMonitor.
The bigger fear, at least from the U.S. perspective, is that a Greek default or “Grexit” would create a dangerous precedent in the market, making default a more viable option for other troubled European economies, such as Italy or Portugal. Moreover, the political instability that could follow in the E.U., the U.S.’s fourth-largest trading partner, would be dangerous.
“There’s a lot of pissed off Greeks right now,” Jared Bernstein, senior fellow at the nonprofit Center on Budget and Policy Priorities, told HuffPost on Monday. “Whether that remains a contained issue within their borders or spreads to other populations who feel they’ve been poorly treated by austerity programs is something we’ll have to see.”