RENEE MONTAGNE, HOST:
The Greek economy is facing huge challenges. Beyond that, Europe is mired in painfully slow growth, made worse by political infighting. Plus, China is suffering through a financial crisis as over the last few weeks, its stock market plunged, losing more than a quarter of its value. It did bounce back in the last couple of days, but still. Now, none of this is good for those countries, but what does it mean for the U.S.? To talk about that, we turn, as we often do, to David Wessel. He's director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal. Good morning, David.
DAVID WESSEL: Good morning, Renee.
MONTAGNE: Might as well just start with Greece. We've been talking about it all week - in fact, for weeks. As we heard from Eleanor just now, the latest deadline for a deal between Greece and its creditors is this coming Sunday. Now, if they don't cut a deal, you know, it may well be out of the eurozone, right? That's what's at stake here - pretty big thing.
WESSEL: Right. Now, there is new optimism in Europe this morning that Greece and its creditors are going to cut a deal. And no matter what happens, the Greek people are really in for tough times. But if you look at this globally, Greece is a very small economy. It counts for less than 2 percent of the eurozone's economy and an even smaller of the world. And, you know, Europe is better prepared to cope with Greek defaulting than it was a few years ago. So the effects on the U.S. of Greece's problems are likely to be small, unless - and this is a big caveat - unless it triggers a tidal wave of financial distress that shakes European and U.S. financial markets and hurts our growth. Now, policymakers keep saying that's unlikely, but they really can't be certain.
MONTAGNE: Of course, China is another thing altogether. I mean, what happens in Shanghai with the stock market is not likely to stay in Shanghai.
WESSEL: Absolutely. The Chinese economy is much more important to the U.S. and to the whole global economy than Greece is. Chinese stocks have been on a roller coaster ride. They've wiped out $3.5 trillion of wealth in a month. Now, intervention seems to have helped, but the crash has shaken unsophisticated investors in China, consumers who borrowed money to buy stock and didn't anticipate this. Now, I asked Treasury Secretary Jack Lew about this earlier at Brookings, and here's what he had to say.
JACK LEW: China's markets are still pretty much separated from world markets. They're obviously moving towards being more integrated. But right now, they're not. So you're not going to - I don't think you'll see the direct linkage there. I think the concern that is a real one is what does it mean about long-term growth in China? I think that that I would break into two pieces. One is how do China's policymakers respond to this, and what does it mean in terms of the core condition of the economy?
MONTAGNE: And David, what do we know so far about those two concerns that Jack Lew cited?
WESSEL: Well, the economy is slowing down. The Chinese said today that auto sales fell in June for the first time in two years. And I think that the problem is that people are afraid Chinese leaders will back away from economic reforms, slowing a transition to an economy less dependent on exports to the U.S., more open to foreign investment and market forces. And that would hurt the U.S. and hurt U.S. companies, so that's the big risk here.
MONTAGNE: Well, with all of this going on overseas and all of what's wrong overseas, can the U.S. economy really continue to improve steadily?
WESSEL: Well, it is a bad global growth environment, and weak economies will affect the U.S. - that lower exports might affect the dollar, interest rates, oil prices and stuff like that. But I think the big unknown is this. The direct effects of Greece and China on our economic recovery, which has been getting better, may be small. But we've learned from the recent past that financial disturbances in one continent, China or Europe, can be very contagious and can move surprisingly quickly across continents. So with the world economy growing so slowly, we could have some kind of financial virus that can spread very quickly. And nobody who's sober can rule out that possibly right now.
MONTAGNE: David, good talking to you.
WESSEL: You're welcome.
MONTAGNE: David Wessel is director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal. Transcript provided by NPR, Copyright NPR.