NEW YORK (TheStreet) -- Should the U.S. and the rest of the world really care that Greece is standing on the brink of defaulting on its debt and possibly abandoning the euro? After all, its economy amounts to just 2% of the whole eurozone.
If it does tumble out of the euro, Greece's GDP will probably shrink by as much as 20% to 30% as its access to international credit evaporates and its international trade disintegrates, but it is unlikely to have much of a direct impact on the U.S. or the rest of the world economy.
To be sure, people have compared Grexit with the collapse of Lehman Brothers in 2008, which triggered a financial tsunami, with stock exchanges plunging around the world, a global recession, unemployment rocketing and market confidence shaken to its very core -- the world is still recovering from that shock.
But Greece's economy is about the size of the city of Milan in Italy, which is smaller than Detroit was back in 2005, and the world has carried on just fine with the Motor City bankrupt.
The knock-on, domino effect of Greece's default could well hurt the U.S. and the world economy, though. Because if Greece does fall out of the euro, the whole eurozone is under threat, and if that collapses then the U.S. and the rest of the world could be in for a bumpy ride.
If Greece is allowed to fall out of the eurozone, the financial markets will get jittery. The smart money has already pulled out of Greece, but if it defaults, investors will start fleeing other debt-ridden members like Spain and Portugal, fearing something similar, perhaps plunging their fragile economies back toward recession.
The value of the euro will plummet and the European Central Bank would have to increase interest rates, putting a further brake on the eurozone economy when it is still struggling to recover from the financial crisis as its GDP bumps along at less than 1% annual growth.
This would harm U.S. exports. Europe is the U.S.'s second biggest trading partner, with the economic activity between them accounting for one-third of total goods and services traded in the world. Exports from the U.S. to Europe amount to around $470 billion a year.