How the U.S. Recovery Hangs on Europe's Debt Woes

A deal to bolster Greece will help, but the world isn’t out of the woods yet.

The euro zone’s debt crisis is a global threat. Mishandled, it will hurt the U.S., Europe and fast growing markets in Asia and Latin America. It could even lead to a double dip recession.

The plan to keep Greece afloat is a good start. But it will take weeks to know if it will work. Many details of the aid offer have yet to be worked out, and the Athens government will have to follow through by approving an austere budget with big spending cuts that are already drawing public protests and strikes. Sticking with the plan will be a real test for Greece. Greece ran a budget deficit of 12.7% in 2009, more than quadruple the 3% ceiling set by the European Union’s Stability and Growth Pact. This year, its debt-to-GDP ratio is on track to reach 125%, by far the largest in the euro zone.

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Associate Editor, The Kiplinger Letter