Investors are wracked by uncertainty. Might Greece still default on its debt? Might Germans pull back financial support? Which country might be next? The questions are unsettling stock prices.
Henny Ray Abrams/AP
Thursday's trading centered around the fear of ripple effects on several fronts.
"Trichet keeps insisting that the Greek economy constitutes only 2 percent of the European economy," economist Desmond Lachman of the American Enterprise Institute wrote in a Thursday commentary for the institute. But "the body blow that a Greek default would deliver to the European banking system – together with the contagion that it would unleash on Spain, Portugal, and Ireland – would have major reverberations throughout the global economy."
That potential for contagion has taken center stage for investors this week. The common theme in all this is uncertainty, which translated into a sell-off in financial markets.
Many finance experts say the logical path forward is for Greeks to adjust their living standards downward, for citizens of other high-debt nations to do the same, and for nations like the Germany and the US to support aid packages from the International Monetary Fund (IMF) to help Greece make the transition while remaining in the euro zone.
But Germans are angry at having to bail out another nation, just as many Greeks are angry at the belt-tightening that's being imposed on them as the price of membership in the currency union.
Even if Greeks go along, there's no guarantee that investors in Greek bonds will get their money back.
Here's why all this is more than just a localized problem.
After Greece, the euro zone may have to deal with debt worries among the rest of the so-called PIIGS nations (Portugal, Ireland, Italy, Greece, and Spain). Private-sector banks in Europe hold lots of bonds from these nations, so the risk of default adds to worries about their health, too.
At the very least, the chaos raises concerns that Europe's economy will be in the doldrums, and that the global economic recovery will be dampened as a result. US and Asian firms won't be exporting as much to Europe.
At worst, the turmoil leads some investors to believe that difficult political decisions will be needed to keep the euro zone alive. (The euro has fallen this year from being worth about $1.45 to $1.26 on Thursday.)