JEFFREY BROWN: The struggle to reach a deal on U.S. deficits and the federal debt ceiling continued as well today. Vice President Biden met again with a bipartisan group of lawmakers, trying to hammer out a compromise.
Meanwhile, on Wall Street, encouraging reports on home building and jobless claims helped to mute the worries about Greece. The Dow Jones industrial average gained 64 points to close at 11,961. The Nasdaq fell more than seven points to close at 2,623.
JUDY WOODRUFF: To discuss the broader threats posed by Greece and the concerns over the U.S. situation, we turn to Jacob Kirkegaard. He's an economist and research fellow at the Peterson Institute for International Economics. And, Roben Farzad, he's a senior writer at "Bloomberg BusinessWeek" magazine.
We thank you both for being here.
Roben Farzad, I am going to start with you.
Remind us, why is Greece again in this kind of debt turmoil?
ROBEN FARZAD, "Bloomberg BusinessWeek": Simply, Judy, it wasn't enough.
The package that was put forward last spring in the spring/summer period of 2010 assumed several things: One, that the government in Athens could push through sufficiently tough austerity and exact cuts out of pensioners and the public union system there; two, that international bond investors would be willing to lend to Greece at decent levels -- the bond yields there were last quoted at 30 percent, which is prohibitive -- and, three, that economic growth in some manner, normalcy in some manner would return and kind of vindicate the supposed shock and awe that we saw the subcontinent come together and package together last year.
JUDY WOODRUFF: So, Jacob Kirkegaard, what is the risk to these other countries if they don't get this worked out?
And maybe I should just back up and ask you, is the feeling that it is going to get worked out or not?
JACOB KIRKEGAARD, Peter G. Peterson Institute for International Economics: Well, I certainly believe that, precisely because the potential downside of a failure will be absolutely catastrophic, and everybody I think realizes that -- in Athens, in Berlin, in Brussels -- that, unless you have a deal, Europe has a real problem on its hands.
And, therefore, I believe there will be a deal. But the real problem is, as your -- as the ITN clip showed, is that -- is actually this issue of contagion. I'm -- first of all, contagion through the banking system, because if you have a default in Greece, the Greek domestic banking system is going to actually collapse, most likely, because they hold a very large number of Greek government bonds.
And then you can have the sort of Lehman-type repercussions through the banking system. So that is the first type of contagion. The other one is sort of cross-country contagion, where large bond investors are going to say, well, if you have a default in Greece, well, maybe they are not the only one that might have a default, maybe Ireland, maybe Portugal, maybe even Spain.
And once you get to Spain, that's really when you get to the sort of systemic threshold in which, currently at least, there is not enough money in the bailout packages to rescue a country like Spain. And that's why it is very worrying that we have seen a sort of gradual increase in the borrowing costs of Spain today and in recent days.
JUDY WOODRUFF: But, given all this, Roben Farzad, isn't it in the interest of all these other countries to get something worked out, so they avoid this worst-case scenario?
ROBEN FARZAD: It is, but the exigencies of the political realities on the ground -- imagine if you are Angela Merkel or Nicolas Sarkozy going back to your electorate and saying that it is in our interest, as kind of the torchbearers, the standard bearers for the European Union, to suck it up, even in this tough economy, and to wire some more billions to our brothers and cousins and sisters in Greece.
It is not being looked at this way. I mean, this marriage is very much troubled because, when it works, it works really well. You have open borders, a single currency, free trade. When it doesn't work, the haves are invariably hit up for money to give to the have-nots. And the electorate is just not happy about that.
JUDY WOODRUFF: So, how do you see it working out?
ROBEN FARZAD: There is going to be some idea of chaos.
I do subscribe to the idea that this is somewhat analogous to the events that we saw in Wall Street in September of 2008. I mean, it was thought out there that, well, look, Bear Stearns was rescued at the beginning of 2008. Lehman was next. If -- we had to at some point let some banks fail and see where the chips fell. So at least the government didn't have to come out and make a blanket, kind of blank-check statement that the entire system will be bailed out.
Obviously, the French and the Germans can't afford that. Again, the risk here is that this goes from Portugal, Italy, Ireland, Greece, and then jumps to Spain, and then heaven forbid it jumps from Spain to France, which truly has systemic exposure across the pond.
JUDY WOODRUFF: So, we're talking about potentially a number of countries, Jacob Kirkegaard, and we are talking mainly to an American audience here. What about the effects in the United States?
JACOB KIRKEGAARD: Well, I think the immediate effect, if this is contained, I mean, once -- if we can avoid contagion to Spain, then the immediate effects for the United States need not be very large, because actually the U.S. financial system is not particularly exposed to Greece or to Ireland...
JUDY WOODRUFF: The banks, the bondholders.
JACOB KIRKEGAARD: Yes, the banks, the bondholders. Even if you start going into the credit default swap markets, it is actually quite manageable.
But once you get to Spain that is when the exposure starts to rise to very dramatic levels. And that is where really the potential for a serious, adverse sort of transatlantic shock starts to emerge.
JUDY WOODRUFF: Well, I'm going to -- I'm going to ask you to keep it here in the United States, Roben Farzad, because the U.S., at the same time, is dealing with its own debt situation.
We mentioned -- Jeff mentioned a moment ago Vice President Biden meeting again today with a group of bipartisan senators. We have been hearing about the deadline on the debt ceiling.
How does what the U.S. is looking at right now compare to what the two of you have been discussing in Europe?
ROBEN FARZAD: Well, you would think, Judy, that it would be immediately instructive that, look, if you are foolish, if you are profligate, that bond investors will punish you and send your rates up to prohibitive levels. Again, Greece is being asked to pay 30 percent.
But the paradox is, any time something like this happens, you have international investors pile into U.S. treasuries. And the government here, while you have Capitol Hill and Washington -- and the White House playing chicken over the game of the debt ceiling. Is it going to be lifted? Is it not going to be lifted? As that is happening, the government is able to borrow for less and less, for reasons that have nothing to do with this dangerous brinkmanship that is happening in D.C.
But the counter, the obverse of that is that, if this goes on for too long, and international bond investors -- they called them the bond vigilantes way back when -- start demanding more and more for short-term borrowings from the federal government in the United States, you suddenly have a situation where, immediately, pain has to be asked for from the electorate.
JUDY WOODRUFF: So -- so, Jacob Kirkegaard, if you are sitting in the United States, and you are watching what is happening in Europe, but you know the United States still has its own debt crisis to work out -- debt problem to work out, how worried are you? I mean, the American banks have been through their own heart attack, if you will.
JACOB KIRKEGAARD: Well, I think you certainly -- certainly should be worried, because, in many ways, it is the same kind of political, as Farzad said, a zero sum poker game that's going on here. It is a political problem in Europe.
The money is there, and they -- you could solve the Greek problem if you wanted, if the political will was there, just as we have the situation in the United States. The United States could solve its debt problem and its fiscal problems if Congress so decided. There are ways to do that. It would be politically painful to do so, but the chance -- you know, we could do it.
And that, I think, is really the key thing we need to look at, because what it means is that, in the case of Europe, I don't believe this is going to be solved until the 11th hour, right before we stand at the brink of disaster. And, unfortunately, I think the same political logic is going to play out in the United States once we get to the end of July.
JUDY WOODRUFF: And, just quickly, Roben Farzad, to wrap up, 11th hour in both places, in other words.
ROBEN FARZAD: Yes, that's the way these things happen, because they are inextricably linked to the political realities on the ground. And that's the universality to this story.
We can't exactly say that it's, oh, those -- those developing banana economies up to their -- up to their business again. Here goes another sovereign blowup. No, in fact, we have to look in the mirror here and learn ourselves.
JUDY WOODRUFF: All right.
On that cheerful note, Roben Farzad, Jacob Kirkegaard, we thank you both.
JACOB KIRKEGAARD: Thank you.
ROBEN FARZAD: Thank you, Judy.