The European debt situation is getting dangerous for the continent and the U.S., and a Greek default of some sort is very likely, says former Federal Reserve Chairman Alan Greenspan.
"What's driving the United States at the moment and to a very large extent is Europe," Greenspan says.
"I think it's very dangerous. Everyone has their fingers crossed but I think we have been through a remarkably elaborate program to try to find out whether single currencies work. For a good long time it looked as though they did," Greenspan tells CNBC.
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At the heart of the crisis lies Greece, who is teetering on the edge of default, which could create a Lehman-style banking crisis that could spread to the United States.
A Greek default, Greenspan says, is looking likely.
(Getty Images photo)
"It depends on how it's done. First of all, let's face it: at 2,000 basis points over the bund, the interest rates for Greece are not sustainable. There is no credible scenario of which I am aware in which they can get by without very significant haircuts in their sovereign debt."
"Are they broke? Yeah. Are they going to resolve the issue in and of themselves? I can't see how."
Turning back to the United States, Greenspan says the economy may be weak but is still in growth mode.
"If we could somehow extract the goings-on in the United States economy from Europe, I think we would see what we have been seeing, namely a sluggish economy but one that is continuously edging higher."
Industrial production indices are flat to slightly higher, productivity and gross domestic product numbers are picking up, but European debt woes are threatening U.S. recovery.
"If Europe wasn't out there, we would have had the same problems we've always had, which, as you know, is basically construction in the United States. But we would not be having the threat to our overall economy and the size of the problem coming from Europe, I don't think, can be overestimated," Greenspan says
The eurozone was a good idea in the beginning, in that it would have added value to member nations' economies.
But cultural differences are having an impact.
"I had said and thought the markets were assuming that the Greeks and the Italians and the Portuguese would behave like Germans. And that's what the spreads were telling us, that they were going to capture the basic culture of Germany, of prudence and savings and the like," Greenspan says.
"If you ask me starting from scratch would they have been better off having a eurozone which included Germany, Austria, Luxembourg, Finland, the Netherlands, that would have worked in the sense that there is a common culture that goes across that part of Europe."
Many experts are warning the European debt crisis is threatening the global economy, as banks that hold Greek debt will suffer from a default as well as those who don't hold Greek debt but do hold paper in banks that are exposed to Greece.
That includes banks in France and in the United States, leaving the fate of the industrial world's economy in European policymakers' hands.
"If they cannot address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system," IMF adviser and Harvard economist Robert Shapiro tells the BBC, as reported by Zero Hedge.
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