An Imperfect Union: Europe's debt crisis

Ten European countries are in recession and three have needed bailouts to avoid default. How could this impact the U.S. economy? Steve Kroft reports.

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(CBS News) Ten European countries are in a recession. In order to avoid default, three have needed bailouts from the European Union and the International Monetary Fund, and more might be necessary. What's at stake? A lot, including the future of the currency, the euro, and the health of the United States' largest trading partner. Steve Kroft reports on the European debt crisis, including how the austerity measures being demanded of Greece are rekindling the ghosts and even enmity of World War II.

The following script is from "An Imperfect Union" which originally aired on April 8, 2012. Steve Kroft is the correspondent. Graham Messick and Coleman Cowan, producers.

There are only a few things that could derail the U.S. economic recovery that finally seems to be underway, and one of them is the debt crisis in Europe, along with the recession that is now sweeping across the continent.

It's similar in many ways to the financial crisis that leveled the U.S. economy in 2008. Except that in Europe, it's not just the banks that are in danger of going broke, it's entire countries. Greece has already defaulted on more than a hundred billion dollars of public debt. Ireland and Portugal have needed massive bailouts to stay solvent. Italy and Spain are just hanging on in what has turned out to be an imperfect economic union. At stake is the survival of the European currency, the euro, and the economic future of America's largest trading partner.

The European Union has all the accoutrements of nationhood: its own flag, its own anthem, its own parliament, its own huge bureaucracy, and its own currency, the euro, shared by 17 of its 27 members. It's a loose economic alliance of countries and faded empires -- with different languages, cultures and customs -- that have more or less been at war with each other for a thousand years. Until recently, their monetary union had brought stability and prosperity to the continent's social democracies, producing good wages, generous benefits, long vacations...but Louise Cooper, a top financial analyst in London, says the European holiday is over.

Louise Cooper: We're in a debt crisis. Eurozone countries have way too much debt. We have gorged on debt. We are living beyond our means. And after 10 years of booming economic times, it is now payback time. We are paying back our credit cards and that will prove very painful and costly.

It already has. Ten European countries are now in recession. In Spain, where the unemployment rate is 23 percent, there have been general strikes and civil unrest. In France, three of its largest financial institutions teetered on the edge of insolvency until the European Central Bank came to the rescue with more than a trillion dollars in easy credit to shore up the system. Seven European countries have changed leadership because of the crisis, and one, Greece, reneged on $133 billion in debts.

Louise Cooper: This is an extraordinary event. You know, a member of the euro club, the elite euro club, can't pay its bills. That is extraordinary. A Western, developed country has defaulted. We haven't seen that since 1940 when Italy did it in the Second World War when it refused to pay its enemies.

The financial markets worry that the same fate could befall Ireland, Portugal, Spain and Italy, which are already all in crisis, and losing the confidence of international investors who have bankrolled their debts.

Louise Cooper: The fear of Greece is it sets a precedent for other indebted countries. Then everybody who owns Portuguese debt or Irish debt, possibly even Spanish debt or Italian debt, you start to worry, "Will I ever get my money back?" That is the problem.

European finance ministers have spent most of the past year trying to find a way to save Greece and keep the Eurozone intact. But until recently, they have lacked the unity and the authority to impose a solution on 17 different countries, all of which have their own financial and political interests. Christine Lagarde, the managing director of the International Monetary Fund, has been part of the process.