U.S. Banks Helped Fuel Greek Debt Crisis

Demonstrators try to burn a European Union's flag during a protest outside EU offices in Athens on Wednesday, Feb. 10, 2010. About 7,000 people took part in two separate, peaceful marches in Athens, against the center-left government's austerity plan to ease Greece out of a major debt crisis. (AP Photo/Thanassis Stavrakis)
AP Photo/Thanassis Stavrakis

A European Union official is traveling to Athens Monday for talks on bailing out the struggling Greek economy. The mounting debt crisis in Greece is also undermining confidence in the Euro and prompting Europeans to blame some of America's biggest banks for making the problem worse, as CBS News correspondent Mark Phillips reports.

The demonstrators who have been filling the streets of Athens haven't been Greeks bearing gifts - they've been Greeks wanting gifts. And so far they aren't getting them.

"They think we are the enemy of Europe - that we are the enemy of them," one protestor said.

"Them" is the rest of the European Union, which Greece has been asking for a massive bailout so it can pay back some of its huge debt. The Greek economy has been severely hit by the recession and the government reportedly needs as much as $35 billion in loans to pay its bills.

And there are fears that Greece, which is part of the Euro currency zone, may drag the rest of the EU down with it, which is why European leaders like Germany's Angela Merkel have been refusing to loan Greece the money.

It's also why Greek Prime Minister George Papandreou has had to promise drastic spending cuts to get the rest of the EU to even consider helping him.

And now it turns out there's an American connection. Some of the big banks, including Goldman Sachs, may have been helping Greece hide the full extent of its debt by selling it a murky financial instrument called a credit-default swap - a key player in the U.S. financial crisis as well -
in which investors effectively bet against the Greek economy improving.

It's an arrangement that's now being investigated in Washington.

"Obviously using these instruments in way that intentionally destabilizes a country is counter-productive and we will be looking closely into it," Federal Reserve Chairman Ben Bernanke said recently.

The Greek economy is not large by European standards, but the potential domino effect threatens other weak economies.

"The real fear is not Greece going under to be honest, as sad as that would be, because Greece is actually a pretty small country," said Steven Bell, chief economist at British financial firm GLC Limited. "The problem is if Greece goes the speculators will move on to Portugal and then to Spain and then to Italy and that really would be a big effect."

And if the recession has proved anything, it's that once things start to go bad, they go bad everywhere.