Greece may take legal action on banks

Greek Prime Minister George A. Papandreou speaks to media.

Greece's Prime Minister George Papandreou says he hasn't ruled out legal action against U.S. investment banks for their role in the Greek debt crisis. Greece blames international banks for fanning the flames of the crisis with comments about Greece's likely default. That's caused the country's borrowing costs to rise.

During an interview with CNN broadcast on Sunday, Papandreou said he wanted to wait and see more results from investigations before making a judgment on what to do. While Papandreou hasn't spelled out details, he says a parliamentary inquiry will investigate whether there has been "fraud and lack of transparency" by banks, which made the Greek crisis worse. But it's not clear whether he's talking about allegations that Goldman Sachs helped the previous Greek government hide the scale of its debts or whether banks speculating against Greek government bonds damaged confidence in the European country.

This morning, the euro hit a four-year low against the dollar. But stocks there are holding up. Not so in Asia, where Europe's debt mess made investors nervous. Markets in China and Japan were down by more than 2 percent.

Sam Stovall, chief investment strategist at S&P Equity Research, says U.S. consumers are for the most part ignoring what's going on in Europe because of recession fatigue. But he says we should be paying attention.

"A weaker European economic growth could translate to weaker prices, or prices gains, for European-based companies, as well as a stronger U.S dollar as a result of a flight to safety, could cause the earnings for U.S. companies to be a little bit weaker," he says. "So if these people have any money in their 401(k)s in the international spectrum, they could be facing softer price appreciation in the months ahead."

EU helps, but countries need to do their part

Last week, the European Union and International Monetary Fund approved a $1 trillion rescue plan for eurozone countries, which they hope will prevent a debt crisis from undermining the euro and spread to another global financial crisis.

Greece has gotten the lion's share of attention over its debt woes, but other European nations are facing huge debt woes that are dragging the euro down. Barry Eichengreen, a professor of economics and political science at the University of California, Berkeley, says that for the eurozone to pull through the crisis, individual countries in trouble have to do their homework.

"The Portuguese and the Spanish -- and I think they're beginning now. They don't want to turn into Greece," said Eichengreen. "The prime ministers of the two countries have put serious budgetary reforms on the table. Now they need to pass those into law, and they need to do the structural reform to make their economies more flexible to go along with the budgetary reform."

Germany moves to prevent more crises

Though countries aren't exactly known for balancing their budgets, Germany wants to change that by forcing eurozone members to significantly limit the deficits they run up each year.

Michael Hughes, an independent economist, says it's urgently needed.

"In order to contain the situation," says Hughes, "There has to be a almost federal fiscal framework that reinforces the standing of the euro in the global market place."

Germany passed a stringent law last year to put the brakes on its own debt. And it wants to be sure its European neighbors are being equally tough.

Michael Hughes thinks the eurozone could learn something from the U.S. where most states aren't allowed to run annual deficits.

"There is federal spending and control, but equally there is state spending and control," says Hughes.

The problem is many European governments may think the German proposals would be too difficult to implement.

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