Greek Debt Bailout Could Affect the U.S. Economy

European leaders are trying to workout a relief package to avoid Greek default.

June 19, 2011 — -- European finance ministers and IMF officials are meeting today to reach agreement on a new bailout package for Greece, but there are questions about whether even a second cash infusion in a year will turn the Greek economy around.

There have been violent demonstrations in Athens, protesting government efforts to implement the demands of the country's creditors, which include spending cuts and tax hikes.

And while the United States is not a direct participant in the talks, the process is being watched anxiously from Washington, because if Greece does default on its debt, it could have a ripple effect across Europe and the United States.

"We've discovered that the United States is very interconnected with the rest of the globe in the last couple of years," Jon Hilsenrath, the Wall Street Journal's chief economic correspondent, said today on "Good Morning America." "Our economy is very vulnerable to shocks right now. It's not like we were in the 1980s and the 2000s when there shocks like Hurricane Katrina or the tech bubble burst and the economy kind of sailed right through."

"What we've seen in the last 12 months with an earthquake in Japan, European financial turmoil last year, that when there are bumps outside of the U.S., it slows us down," he said. "Our own economy is going through a slowdown right now, so we have to be very attuned to what's happening rest of the world."

Greek Prime Minister George Papandreou said that in exchange for another financial aid package, Greece would make rigorous revisions to its constitution. But it is not clear whether a second rescue package would stop Greece from becoming the next Lehman Brothers, especially since the first rescue package did not work.

"[The bailout] prevents a crisis, a crisis that was staring us in the face last week, from happening. But it does not solve the underlying problem of too much debt that the Greeks have out there," Hilsenrath said.

"We also have to remember that there are other countries like Portugal, Ireland and Spain that are dealing with similar problems," he said. "So I certainly think that we should not just discount the possibility that there could be more financial turmoil in the future in Europe that rebounds back to the United States."

White House and Obama administration officials expressed concern Thursday that European leaders were not acting quickly enough to contain the economic crisis in Greece, which they said could be a drag on the U.S. economic recovery, as it was last year.

The problems in Greece could lead to these probable outcomes:

If the European economic zone countries come to an agreement to bail out Greece, those countries will have less money to spend on American goods, causing job losses here.

If Greece defaults on its debt, it would mean any entities that bought bonds (banks, governments and private investors) would have to readjust their balance sheets. Those entities had relied on the interest payments paid by Greek bonds to fund other investments and buy goods and services, so that money would no longer be there to spend.

If a full default occurred, other troubled countries, notably Spain and Portugal, could also follow suit, leading to a wave of defaults that would severely affect the European zone and could send shockwaves all the way to Wall Street.

Earlier this month, during the White House visit of German Chancellor Angela Merkel, the president attempted to convince her of the need for Europe to act quickly and decisively.

"We think it would be disastrous for us to see an uncontrolled spiral and default in Europe because that could trigger a whole range of other events," he said.

ABC News' Michael Murray and Jake Tapper contributed to this report.