Europe: So many ways for things to go wrong

German Chancellor Angela Merkel and other G20 leaders have put Europe's crisis front and center.

Douglas J. Elliott, who worked as an investment banker for two decades, is a fellow at the Brookings Institution.

We have been witnessing a remarkable display of the best and worst of the eurozone, the group of nations that share the euro as their currency. The awkwardness that comes from sometimes being 17 individual countries, and sometimes one large one, is really showing.

The world was whipsawed when European leaders announced a summit to create comprehensive solutions to the Euro Crisis -- then had to announce a second summit a few days later when it became clear there would be too little agreement at the first one.

Next, it looked like an accord might not be reached even then, only to be followed, in the best tradition of the theater, by a 4 a.m. agreement. Financial markets shot up the next day, hesitated the following day, and fell sharply on the subsequent business day.

Many questions were raised about the crucial details of the somewhat sketchy agreement. And then the Greek prime minister shocked the world by announcing he would let the Greek public vote on whether to uphold their side of the bargain.

It is not a crazy idea for the Greeks to hold a referendum, but leaders of the other 16 Eurozone nations were incensed that not a word had been said to them at the summit a few days earlier about such a vote.

These twists and turns are great theater, and they give people like me a lot to talk about, but it's a scary way to run one of the largest economies in the world -- scary for us, not just them.

The United States has a great deal at stake in what happens over there. If the Eurozone blows up, they will have a severe recession, which will create another recession here, although not as serious a one.

The United States exports about $400 billion a year to Europe, has around $1 trillion of direct investment there, and our banks have over $5 trillion of credit risk of various kinds to European companies, individuals and governments. We also export, lend to and invest in many countries like China that are reliant on exports to Europe.

Global linkages mean that a serious European recession would hit virtually the whole world. Most developed countries, including the United States, would have recessions, while the rapidly growing emerging economies like China would grow significantly less quickly. China is built on a model of rapid growth and serious problems might well surface if they slow to more moderate growth.

Europe's debt crisis

The good news is that Europe will most likely still muddle through. There is a very strong political will to keep the euro area together. It goes in fits and starts, but leaders are generally doing what they have to do, even if we all wish they could move much faster and more decisively.

Even the Greeks seemed to come together Thursday to avoid the need for a referendum by developing some much needed consensus. This is happening because even the angry Greek public wants to remain in the eurozone; whereas turning down the bailout package would likely provide a quick trip back to life outside that zone, with all its horrors for a small, historically mismanaged country with the need for major structural adjustments.

That said, there remains a substantial chance that my positive view will turn out to be wrong. There are so many ways for things to go wrong that the probabilities of disaster add up. Most of us never saw the call for a Greek referendum coming, and we could be caught by surprise by other pitfalls on the path ahead.

I suggest that we all pay close attention to the other side of the Atlantic, and keep our fingers crossed.