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feature A late November compromise between the International Monetary Fund (IMF) and European Union (EU) finance ministers saved Greece from defaulting on its massive debt and eased concerns that the nation would be forced to leave the eurozone. Solving the Greek debt crisis was an urgent priority for the IMF and EU. The eurozone is the world's largest single market and a default or withdrawal by Greece would have plunged Europe into a deep recession that would have spread like a contagion across the globe. America's slow recovery would likely have bogged down. But the eurozone, and for that matter the world, are far from out of the fiscal woods. At least four other eurozone countries— Spain, Ireland, Portugal, and Italy—are drowning in an ocean of red ink. All four have applied for monetary help and, like Greece, have employed draconian budget measures to put their fiscal houses in order and regain the market's confidence. Those severe budget cuts and determined attitudes have made some analysts bullish about the eurozone's future. In a recent report, the Brussels-based Lisbon Council think-tank and Berenberg Bank praised Greece as "the leader in economic reforms towards healthy economic fundamentals." The study also noted that pressure from the current crisis has forced Greece, Spain, Ireland, Italy, and Portugal to undertake painful, unpopular economic reforms that are "slashing their underlying fiscal deficits and improving their external competitiveness at an impressive speed." "If the eurozone gets through the current acute crisis and stays on the reform path, it could eventually emerge from the crisis as the most dynamic of the major Western economies," the study says. But not everyone is quite as optimistic. Some experts believe that the breakup of the eurozone is inevitable and that the smaller countries will return to their national currencies. Others see a two-tier, big economy/small economy eurozone that remains close but separate. In its twice yearly report the Organization for Economic Cooperation and Development, a 34-country think-tank based in Paris, said that the European debt crisis "poses the biggest threat to global economies and could drag Europe into a deep recession in the next two years, and the U.S. along with it." For now, the fracturing of the eurozone appears unlikely. If anything, America's economy— especially the high-end real estate market—is benefiting from the crisis. Wealthy Europeans anxious about the debt crisis and rising taxes are shipping their euros across the Atlantic. "Europeans are going to be looking to place capital outside of their countries whether the eurozone breaks up or not," says Jonathan Daniel, CEO and founder of Silo Finance Corporation, a private equity boutique real estate lender based in Stamford, Connecticut. "We are already starting to see Europeans acquire big-ticket homes in New York City, the Hamptons, and probably out in California, Colorado, and Florida. They want to diversify out of their currency and go into hard assets in U.S. dollars." That bodes well for the real estate market, but it should be forewarned: Should Europe fall off its own fiscal cliff and into recession, the America economy, including the housing market, will follow suit. The only question will be its depth and breadth. The answer will hinge on the overall health of the American economy when and if it happens. "If the eurozone falls apart, all bets are off and we are going to take a hit," says Wendy Fitzsimons, a partner with Romer Debbas, a Manhattan boutique law firm specializing in the areas of real estate and related businesses. "The eurozone going down will take us with it because we are so economically interwoven." A Tangled Economic Web T he United States and the European Union have the most integrated relationship in the world, according to the European Commission (EC). The EC reports that the U.S. invests three times more in the EU than it does in Asia, while the EU infuses eight times more money in the U.S. than it does in India and China combined. The United States Bureau of Economic Analysis estimates that Europe buys 22 percent of America's exports. So it stands to reason that the complete breakup or just one country defaulting and exiting the eurozone would have an enormous impact on America's fiscal health. "It's important to know that the eurozone is the world's largest single market, so any significant decline in European activity is going to have an adverse effect on the United States," says Christopher Vecchio, a currency analyst for the DailyFX. com, a market news and analysis website. "Our corporations and producers will export fewer goods that will weigh on the overall GDP figures. So some growth will be lost there as a factor of declining trade." If there is a silver lining to a European recession it is that it wouldn't just hit America. An EU recession would ripple across global markets. That means investors from Hong Kong to Brazil anxious to protect their assets will seek refuge with the world's most liquid currency backed by the world's most liquid market: the United States Treasury. "Just as we've seen in previous scenarios, investors and traders leave their high-yielding securities such as the Australian dollar or the New Zealand dollar or the S&P 500 and jump into bonds, the U.S. Treasury market, or U.S. dollars," Vecchio says. "So at the end of the day, we'd like to assume that, all things being equal, the market reaction will be similar." So let's assume that the eurozone comes apart at the seams and throws Europe into a recession when the U.S. economy is on solid footing. If events follow history, investors will start gobbling up Treasury bonds. The more they buy, the higher bond prices increase and yields fall. Since most mortgages are tied to the 30-year Treasury bond, lower yields translate to lower mortgage interest rates—a good thing for the real estate market. Now let's flip that assumption. The eurozone's monetary woes worsen and cause it to splinter. The American economy is weak and the Federal Reserve has exhausted every monetary trick in its bag to no avail. And Congress, being Congress, allows the country to slide off the fiscal cliff. With its rating downgraded, America would no longer be a safe harbor where investors can wait out the storm. Real estate and every other segment of the economy will be adrift. Hello, worldwide financial panic. "Unless it's a doomsday scenario, which is farfetched at this point, talking about the U.S. The M Report | 35