The debt-related turmoil in Europe is already having negative effects for the economy – not just within the euro zone but worldwide, many economists say.
It has affected credit conditions (making many banks less willing to lend to one another) and consumer confidence in Europe. It has affected stock market values worldwide, as investors worry that Europe's troubles could deepen or that, even if they don't, the simmering problem dents global growth.
As of September, some economists saw the eurozone entering a new recession, with a high risk of downturn in the US, where fiscal brinksmanship in Washington has also damaged economic confidence.
On Sept. 24, World Bank president Robert Zoellick didn't use the "R" word, but he warned of a "looming danger that failure to take decisive action in Europe and the United States may shake the entire global economy."
Though emerging market nations have been performing stronger than the high-debt advanced economies, they, too, face a risk from Europe's crisis. A slowdown in consumer purchasing in Europe and the US ricochets to places like China and Turkey.
Although Europe's commercial banks are the ones most heavily invested in sovereign eurozone debts, US banks also own eurozone bonds and related investments (such as derivative contracts linked to those debts). By one estimate, from the Bank for International Settlements, the exposure of US banks to Portugal, Ireland, Italy, Greece, and Spain is about $641 billion.
