What Greece means to the US economy

Greece doesn't mean a lot to the US economy.

However, the tiny country in the periphery of the eurozone has hijacked the headlines with its financial problems. With Greece now missing debt payments while edging closer to exiting the euro currency, the story has never been more compelling.

But economists agree: Greece is not a big deal to the US.

"[T]he risks of contagion to the US economy and financial system are small," Capital Economics' Julian Jessop explained. "The direct links between the US and Greece (whose economy now accounts for a trivial 0.3% of global output) are obviously tiny. However, even exports to the EU as a whole only represented 1.5% of US GDP last year."

BNP Paribas' Paul Mortimer-Lee estimates that US exports to Greece account for about 0.006% of the US economy.

Importantly, the financial ties are also minimal. This is reassuring as hidden exposures sometimes pop up on bankbooks.

"Bank for International Settlements Figures show that the exposures of US banks to Greece amounts to $12.7 billion, or just 0.04% of total cross border claims," Mortimer-Lee wrote in a research note.

"The collapse of one or more large European banks could have a major impact on the US, but we would expect that risk to be much smaller than in 2012, when Greece was last close to the brink," Jessop added. "US financial institutions are now in better shape and have had plenty of time to mitigate their exposure."

So it's pretty clear that the impact of Greece's worst-case scenarios would hurt the US economy by that much.

But would even a small impact affect monetary policy? This is an important question as the Federal Reserve is preparing to tighten monetary policy with interest-rate hikes. Here's Jessop:

"The Federal Reserve is preparing to tighten monetary policy as the US economy has recovered substantially since the financial crisis. But could turmoil in the eurozone triggered by Greece cause the Fed to balk? Here's Jessop again: "The Fed would, of course, be reluctant to hike rates for the first time since 2006 in the midst of another global financial crisis triggered by Greek exit from the euro. However, we do not expect contagion from developments in Europe to be severe enough to prevent the US central bank from pressing ahead with a September lift-off, provided domestic fundamentals continue to strengthen ... [T]he Fed’s decision will ultimately depend on domestic economic data and fundamentals. The labour market is buoyant and wage and core price pressures are picking up, meaning that it is increasingly hard to justify keeping rates at emergency lows of close to zero. A crisis in far-away Greece is unlikely to change this."

Some folks might actually argue turmoil in Greece could actually be a good thing for the US. Should things deteriorate across the eurozone, there may be more demand for safety in US Treasury securities, which could help keep the US financial market liquid and long-term interest rates low.

Ultimately, while the Greek story is a fascinating one, it just doesn't really move the needle in the US economy.

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