It’s beginning to dawn on the U.S. press that the slow-motion crash of the European Union just might have some nasty effects here at home, an angle I’d been noticing has been missing a lot lately. How nasty will depend on just how calamitously the project collapses—or whether the Europeans manage to muddle through the mess.

If there’s one thing capital markets don’t like, it’s revolution on the streets of a European democracy, particularly one like Greece, a domino temporarily propped up by plan that used more debt to bail it out of a debt crisis. Combine that with an already weakening (and already weak) U.S. economy, house prices that continue to plunge, and incompetent and captured political leadership, and the realization that extend and pretend isn’t the way to get out of a jam, and markets are beginning to get the jits again. When that happens, the business press snaps to.

Bloomberg conveys the gravity of the situation in its headline:

Europe’s ‘Lehman Moment’ Looms as Greek Debt Unravels Markets

The Wall Street Journal gives huge play to its Greece/euro story, bannering it in large type across page one:

Fresh Greek Shock Waves

Violent Street Protests in Athens Shake Government, Spark Global Market Woes

The New York Times puts it above the fold on page one:

Markets Falter as Worry Rises in Greek Crisis

It was just Monday that The Wall Street Journal could write a story on “What It Would Take to Do a Double Dip” without once mentioning the words Greece or Europe.

Today its lede page one story is dramatic:

Greece shook global markets, intensifying fears of a default, as tens of thousands of demonstrators protested a new round of budget-cutting plans and its prime minister offered to step down to try to preserve them.

Protests across the capital sometimes turned violent as Prime Minister George Papandreou sought an agreement with opposition parties on austerity measures demanded as the price of a new bailout by euro-zone nations and the International Monetary Fund.

When his offer to step down in favor of a unity government failed, he instead announced in a late-night televised address that he would reorganize his cabinet Thursday and then call for a vote of confidence in Parliament.

Greek bond prices are pointing toward a default (prices point to a 75 percent likelihood, according to this WSJ story on the U.S. angle) and other weak European financial systems are seeing their bond yields soar too.

Bloomberg has some alarming quotes:

“The probability of a eurozone Lehman moment is increasing,” said Neil Mackinnon, an economist at VTB Capital in London and a former U.K. Treasury official. “The markets have moved from simply pricing in a high probability of a Greek debt default to looking at a scenario of it becoming disorderly and of contagion spreading to other economies like Portugal, like Ireland, and maybe Spain, Italy and Belgium”…

“This is by no means the end of the story, but based on current majority, such a motion should pass,” Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London, wrote in a note to clients yesterday. “If not, then Armageddon scenarios come into play, which include default and potentially the whole contagion scenario plays out.”

Ahh, sounds like 2008 all over again.

The Times reports on the contagion prospect:

he fear that a default by Greece could lead to broader European problems were fanned by Moody’s Investors Service, which on Wednesday put the credit ratings of three of France’s largest banks on review for a possible downgrade because of their exposure to Greek debt.

Moody’s cited concerns about the exposure of the three banks, BNP Paribas, Société Générale and Crédit Agricole to the Greek economy, either through holdings of government bonds or loans to the private sector there, directly or through subsidiaries operating in Greece.

Even if the Europeans get it together to push Greece (and Ireland, and Portugal, and Spain, etc.) through the short term, it’s unclear that the political will exists to fix the problem instead of just patching it. That will weigh on the global economy in the medium term, as will the threat that some unforeseen circumstance will plunge the world back into financial crisis.


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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.