A Quick and Dirty Primer on the Greek Financial Crisis

If you are anything like me, you've been fretting about what you should pay attention to now that the Anthony Weiner scandal has ended. Should you focus on the brand-new Miss USA, Alyssa Campanella, who momentarily topped Google's Hot Trends list -- and wore an itsy-bitsy teeny-weeny polka dot bikini for the swimsuit competition? Or should you study up on the Greek financial crisis which some officials and commentators believe threatens the world economy?

Well, now you can do both because right here, I am offering you a fast and furious rundown on Greece so you'll know exactly how worried to be.

But first, some history. The Greek government last year started running out of money, and private investors refused to lend it any more unless it paid Tony Soprano levels of vigorish. So a batch of wealthier European countries got together to advance about $100 billion in loans -- if Greece cut its huge budget deficits, which it tried to do by passing a batch of austerity measures, including pay reductions for Greek public employees, a higher retirement age and so on. With all those loans to pay off, however, Greece will be out of cash by mid-July unless it receives more aid. So European leaders are demanding new belt-tightenings. But when the Greek government proposed a 3 percent tax on all wage earners, cuts in retirement bonuses and hikes in property taxes, riots broke out in the streets. The big fear is that if Greece defaults, bond buyers will refuse to invest in other troubled European governments, like Ireland, Portugal and, the biggie, Spain. In that case, the sky might fall, which reminds me that Falling Skies, a new TNT sci-fi series starring Noah Wylie about the aftermath of an alien invasion, was also high on Google's Hot Trends list.

So here's what you, the average consumer, need to know:

1. Greece is a tiny country with a gross domestic product of about $322 billion in 2010, 39th in the world. U.S. GDP is upwards of $12 trillion. Even if Greece defaults on its debts, the impact on the world economy should be minor.
2. The biggest risks are to European banks that hold Greek debt. (U.S. banks have barely any and have hedged what they do hold.) Money market funds here invest in short-term European bank paper, so, according to Bruce Magid, dean of the International Business School at Brandeis University, "the U.S. system is indirectly exposed." He adds, however, that money fund managers have been cutting their holdings in European paper since the crisis broke out anew this spring.
3. In the uncertainty, the Euro could drop. So far, however, it has held steady, right now at $1.42. And, says Laura Gonzalez, assistant professor of finance at Fordham University, a cheaper Euro "could be good for consumers who plan on vacationing in Europe." Travel to Greece could be a real bargain unless austerity measures lead to cutbacks in museum hours and more street rioting which would make touring less than fun.
4. Greece's troubles (not to mention those of the also tiny Ireland and Portugal) have made import prices very volatile. Catherine Mann, professor of global finance, also at Brandeis' International Business School and currently a visiting scholar at the Federal Reserve Bank of Boston, says that price movements in imports have been "rising and falling upwards of 10 percent in any given month" due to the crisis. "Compared to one year ago, imports from Europe are about 5 percent higher, more than double the increase in the U.S. CPI (Consumer Price Index). So consumers who have a taste for European products are paying a lot more."
5. Greece's troubles might have it importing fewer goods from the U.S. which could translate to factory slowdowns here and increased unemployment. But, remember what I said about Greece being small? Exports to Greece are only about $2 billion a year comprising just 1.12 percent of total U.S. exports just for April. Even if they drop, the effect would be marginal.
6. If Greece goes bust, the stock market could freak out, says Robert Rainish, professor of economics and finance at the University of New Haven. Of course, being a professor, he put the issue a little more sedately: U.S. consumers, he wrote, "would be impacted by a decline in the value of their financial assets." Anxiety would probably lead to "a reduction in general consumption, then lower production, a decline in hours worked (less employment), and then lower income." According to the Wall Street Journal, however, we may have already seen the worst of Greek-influenced market drops. Of course, the market could panic for any reason at all any day of the week.