Greek crisis may hit US economy: Fed regional chief

(WASHINGTON) - The Greek debt crisis may directly affect the US economy by hitting American exports and the financial system, Atlanta Federal Reserve regional chief Dennis Lockhart warned Monday.

He said adjustments across the European Union to fiscal problems resulting from the Greek crisis could dampen eurozone growth and constrain US exports to that region.

The crisis could also lead to currency flows from the euro into "safe-haven" US dollar assets, causing an appreciation of the greenback and hurting American export competitiveness, Lockhart said.

The European Union as a whole is the largest export market for the United States.

In addition, Lockhart said, the possibility that the Greek fiscal crisis might lead to a broad shock to financial markets "could play out in the banking system or in the form of a general retreat from sovereign debt."

"The Greek crisis might directly affect the US economy," warned Lockhart, the first US central bank official to clearly express such concerns.

He said that the possibilities he cited had not been factored into his outlook so far.

"But developments around the Greek situation deserve rapt attention," he said.

The 16-nation eurozone is enduring the worst crisis in its history amid spiraling government debt levels, anemic economic growth rates and rising social protest against austerity measures and high unemployment.

Europe-wide problems with public finances are particularly acute in Greece, which has the highest public deficit in the eurozone and has been the focus of concerns on financial markets that have dragged down the value of the euro.

The Greek turmoil has been wreaking havoc in financial markets since late last year, leading to warnings over mounting public debt levels in particularly developed nations.

The International Monetary Fund at the weekend warned rich nations to be wary of their surging government debt levels as they could dampen economic recovery from recession.

Risks have grown to the credit ratings of the United States and other large triple-A sovereign debt issuers, Moody's Investors Service cautioned recently.

"The Greek drama we're watching with such great interest should heighten recognition of the urgent need here in the United States for a credible path to fiscal sustainability," Lockhart said.

"Rising public awareness of the country's serious fiscal imbalances should serve as a call to action," he added.

According to the Congressional Budget Office, the US federal budget deficit rose from an average of about 2.4 percent of gross domestic product (GDP), a key measure of the country's output, in the 1970-2008 period to a 10 percent ratio in 2009.

"No budget path currently under consideration would keep the public debt from growing relative to gross domestic product. Clearly, an ever-rising debt-to-GDP ratio is unsustainable and a matter of great concern," Lockhart said.

"Government finances are severely strained at all levels. All of these fiscal pressures represent another downside risk for the broad economy."