Why the Greek Elections Matter for U.S. Job Growth

The Hellenic Republic's legislative elections could create problems in the U.S. economy.


Before Americans vote Republican or Democrat in November, they may want to decide if they're rooting for PASOK, Syriza, or New Democracy. Greece is electing a new government on Sunday, and the outcome could impact the U.S. job market far sooner than any spat between President Obama and former Massachusetts Gov. Mitt Romney.

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The Greek election is widely viewed as a referendum on the country's place in the euro zone. Greeks may elect leaders who agree to stick with the strict terms of the hundreds of billions of dollars in bailout money they have received. But if they pick leaders who are angered by the austerity that has come with those bailouts, there are widespread fears that Greece will leave the euro zone, potentially wounding the European and global economies with it.

That uncertainty makes potential American hirers hesitant.

"You're just fundamentally not going to undertake a large further investment, even in the U.S. market, if you risk that maybe Europe, which is still a sizable chunk of the global economy, is about to go down the tubes," says Jacob Funk Kirkegaard, research fellow at the Peterson Institute of International Economics, a Washington, D.C.-based think tank.

A Greece exit could indeed send Europe's economy spiraling downward, says Kirkegaard. "Fundamentally, people will be worried about: 'If Greece can leave, maybe other countries can leave,'" he says. "It would be hugely destabilizing for the rest of the euro area. You would reintroduce currency risk into the common currency. You would show doubt about whether a German euro would be more valuable than the Italian euro."

If that happens, it could mean that business owners will continue to sit on their cash, rather than using that money to expand. Low business confidence is the main reason employers are hesitant to hire, says Kirkegaard. And while the business community's gut feeling is a nebulous, difficult-to-measure concept, it is certain that Europe is a key factor in dragging that confidence down.

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He's not the only one who believes that more trouble in Europe could further rattle the U.S. economy. Speaking to Congress's Joint Economic Committee last week, Federal Reserve Chairman Ben Bernanke listed Europe worries as one reason firms are reluctant to expand, telling members that "the situation in Europe poses significant risks to the U.S. financial system and economy."

"If you're a business owner and you're looking a few months ahead, you're worried about Greece, you're worried about Europe, you might say, 'Let's wait and see how it shakes out with Greek elections,'" says Chad Moutray, chief economist with the National Association of Manufacturers.

"The worst case scenario for us is not only that Greece leaves but there is some question about the euro," he says. "That definitely could have an effect not only on Europe but internationally."

Moutray also points out that for American manufacturers, Europe is of particular importance.

"Europe accounts for 20 percent of manufacturing goods exports," he says. "To the extent that Europe or other countries are slowing a little bit, that hurts our exports."

Interestingly, an April survey of firms from the National Association of Business Economics suggested that American firms are not worried about the crisis. In that survey, over 70 percent of respondents said that the European debt crisis was not affecting their sales, and 77 percent foresaw no such impact in the coming six months.

Indeed, there are plenty of small firms in the U.S. that have no direct links with the European economy—they do not export goods to the E.U. or cater to European tourists, for example. But the European crisis may impact them in ways that they do not even recognize.

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For while the crisis may not affect their sales significantly, it contributes to a general atmosphere of fear and risk-aversion.