May 31, 2011 - Greece seems to be the most powerful nation in the world. As it goes, so goes the stock market. Investors wonder: Will Greece be able to pay interest on its debt? Can it cut budget deficits enough to show investors it can be trusted to run the country properly? Will it be cut out of the European Union?

Here's the big deal: think of Greece as a corner domino in a stack of dominoes that reaches very high. If it's removed, the whole thing falls down. It works like this.

The European Union is a consortium of nations, using a common currency: the Euro. The Euro is only as good as the countries that back it. Right now, Germany is the strongest of the Euro countries, lending money to weaker ones, along with the European Central Bank. But that can't last forever. There are covenants attached to that money, ones like cutting the budget of Greece to a level that demand receipts from taxes equal expenses. Basics like that. It comes as a shock to some that when expenses exceed receipts, trouble follows. But the message is definitely getting out there.

So if Greece doesn't tow the line and get itself into shape (and Spain and Portugal are also on the watch list for problems), it could be cut off from more loans. If that happens and Greece defaults on its debt, then investor confidence erodes in all members of the Euro. Investors sell their Euro holdings and buy others.

Greece would then be removed from the European Union, allowed to drift off into an economic maelstrom of its own making. That would most likely save the Euro for a while, but then strong countries like Germany would have lost a lot of money. They won't want to continue to bail out other countries. So they might want to leave the Europearn Union as well. If that happens, there would most likely not be any Union at all. It would be back to each country on its own, having its own currency. Trading and tariffs would be altered to the benefit of each country. The idea of a Union would simply be a memory of a grand experiment that failed.

Furthermore, the dollar would strengthen as investors look for a safe haven for their funds. As with any commodity, when there is more demand for a product, the price goes up. So will the dollar. When that happens, U.S. goods become more expensive, curtailing exports. Exports were estimated to be $1.27 trillion (by the CIA) for 2010. The Gross Domestic Product (all goods and services produced in the U.S.) for 2010 should be about $15.5 trillion so exports make up about 8.2% of our economy. With our economy struggling to keep positive traction, any cut back in exports will definitely be felt by companies relying on overseas sales.

While Greece in itself isn't big, it holds a pivotal position in the world of economics currently. If it weren't part of the European Union, it wouldn't matter nearly as much (any time sovereign debt is in trouble, it has a negative ripple effect). But since it's borrowing money from Germany and other EU countries and the Central Bank, all investors are watching if that money will be paid back (and the interest). If Greece can't make the sacrifices needed to balance its budget, expect far reaching ramifications, all negative, that will be felt by everyone, even the U.S. stock markets.

- Ted Allrich