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Greece, Spain and Portugal are struggling to revive their economies. And that could be a problem for the whole European Union economy. The World’s Matthew Bell looks at what’s at stake for the US.

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MARCO WERMAN: I’m Marco Werman and this is The World, a co-production of the BBC World Service, PRI and WGBH Boston.  On the U.S. economy, first the good news; unemployment has dipped slightly.  The Labor Department says the jobless rate crept down to 9.7% in January from 10%.  Now the bad news; a separate survey found that U.S. employers shed some 20,000 jobs last month.  It’s been a turbulent day for the markets in the wake of that news and the economic news from Europe, as The World’s Matthew Bell reports.

MATTHEW BELL: Conventional wisdom says it’s the beginning of the end of the great global recession.  But not in parts of Europe.  The Euro zone counties of Spain, Portugal and Greece are in tough economic shape.  Former IMF economist Kenneth Rogoff just got back from Greece where he says the mood among financial experts is grim.

KENNETH ROGOFF:  This is a country that has run a government deficit of an average of almost 8% a year since the early 1980′s.  It’s at 13% now.  They’re government debt is more than 120% of their national income.  They owe foreigners even more than that counting private debt.  They are on an unsustainable trajectory and the markets have just lost confidence.

BELL: Rogoff says the writing is on the wall.  Greece is likely to go into default and need to be rescued.

ROGOFF:  Greece is going to have to be bailed out.  They don’t’ acknowledge it yet.  The Prime Minister thinks that he can push forward a program that will be credible on its own.  The trouble is that, first of all his program is so lacking credibility. It’s just not tough enough.  Spending has shot up the last couple years, but he still isn’t talking about big spending cuts.  They need credibility.  I don’t think the European Union even can provide it.  They’ve never done this before.  They’re not good at this.  I bet that Greece is going to end up in the arms of the IMF.

BELL: To a lesser extent Portugal, Spain and Ireland are facing similar troubles.  Part of the problem is rooted in the way the Euro zone works. The 16 country zone has one currency, the Euro, and one monetary policy.  But it’s still made up of 16 sovereign nations with their own political systems and political realities.  Arnab Das is with the financial consulting firm Roubini Global Economics.  He says the Euro zone is not likely to splinter apart as a monetary union, but the tension is still there.

ARNAB DAS:  The underlying issue is that Europe, there’s one monetary policy, but it’s really many different sovereign countries and many different levels of income and many different rates of growth.  Right?  So one size really so far, doesn’t fit all.

BELL: As a result, the Euro as a currency is taking a hit because of the poor health of some of the zone’s weaker economies.  What does that mean for the global economy?  Andrew Walker is the BBC’s economics correspondent.

ANDREW WALKER:  I think in the short term, at least, a declining Euro might actually be slightly helpful for countries in the Euro area.  They have been concerned about the currency’s strength against the dollar and against the Chinese currency.  However, I’d put it the other way round, the weakness of the Euro, the declines we’ve seen in the last few days, are a sign of these underlying problems that themselves could be very disruptive, indeed.

BELL: As for the possible impact on the U.S. economy, Kenneth Rogoff says we’re probably not looking at round two of the global financial crisis here.  But he says economic pain in southern Europe could spread to the rest of Europe and even to American shores.

ROGOFF:   If it really, really spreads, it’s going to make it very hard for the rest of Europe to grow fast.  We export to Europe.  We depend a lot on their capital and their integration.  It could easily end up cutting, say a percent, off our growth rate, which may not sound bad, but when you’re crawling out of the recession the way we are, it would count a lot.  It would translate into lost jobs in the United States.  This is definitely an unstable moment.  The world needs to heal still after this huge financial recession.

BELL: Rogoff says the situation in hard hit Greece has some lessons for the U.S.  Deficits and national debts can’t be allowed to climb indefinitely without driving up interest rates.  He adds that Americans can’t keep choosing tax cuts and more government spending without paying a price some time down the road.  For The World, I’m Matthew Bell.

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