By Pan Pylas, AP Business Writer
BRUSSELS (AP) — European and U.S. stock markets have encountered turbulence recently as investors worry about the debt crisis enveloping Europe, particularly in Greece.
Here are some questions and answers on the Greece debt crisis and its wider significance.
Q: Why is Greece's debt load — estimated at 123.3% of gross domestic product for this year — such a problem?
A: Greece's debt load has stoked concerns in the markets that it will end up having a full-blown debt crisis. The risk is that it will not be able to get the money it needs to roll over expiring debt and pay off the interest on its rising debt burden, thereby triggering a default.
The principal losers of a default would be those who have exposure to Greece, which includes other countries as well as banks in Greece and Europe holding Greek bonds. In the current globalized world, markets would zero in on the next weakest link — and it's this threat of contagion that has prompted EU leaders to consider ways of helping Greece.If a much bigger economy, such as Spain, gets into similar difficulties, the global impact would be much greater.
Q: Other countries have large debt loads but no crisis, why?
A: Japan has debt worth nearly 200% of its economy but no one is talking about a potential default. The main reason is that Japan has access to an abundant lending market — its own, the Japanese bond market.
Italy also has a bigger total debt burden but its current annual borrowing of just above 5% of its gross domestic product is way lower than Greece's 13%, meaning that it does not need to tap international investors as urgently.
However, if the EU does not douse the Greek fire, then it might not be long before Italy is in the market's crosshairs.