Greece may be thousands of miles away, but in today’s increasingly globalised world, economic depression in Europe equals economic recession for the USA.

Unfortunately, the troubles across the Atlantic don’t appear to be improving and right now Greece is on the brink of dropping out of the euro zone currency. But what does this mean?

Greece makes up the ‘G’ in the set of European countries known collectively as the PIIGS, Portugal, Ireland, Italy, Greece and Spain. These countries have each found themselves suffocating in sovereign debt and because they all share the same currency, letting even one PIIGS economy fail, means GFC part 2 – director’s cut and scarier than ever!

The dominoes have already begun to fall with France, one of the EU’s strongest economies, losing its coveted AAA rating by Standard and Poor’s.

Most agree that if Greece defaults, or drops out of the euro, its effect on other economies will be immediate and severe. Emerging and established markets, large and small businesses, will all feel the impact.

EUROPE’s crisis HITS HOME: How small businesses in America will be impacted

Europe is America’s number 1 trading partner. Conservative figures indicate that over 14 per cent of our exports go to the Eurozone and conversely the EU invests heavily in American companies. To put it another way, the European Commission for Trade indicates that US investment in Europe is three times higher than for all of Asia.

It goes without saying that American SMEs with direct links with Europe will be the most severely affected by a European crash. If for example a sizable proportion of your exports go to Europe, then you’ve probably already felt some tremors.

But it goes deeper than that. Many small businesses now rely heavily on China; it’s a major source of investment, a strong customer base and provides cheap manufacturing and outsourced labor for many American companies. However, the International Monetary Fund recently reported that the European Crisis could severely damage China’s growth prospects. While the IMF has forecast the Chinese economy to grow by 8.2 per cent this year, a sharp recession in the euro zone will cut this by almost half. A faltering Chinese economy is not good for anyone, and small business owners with any kind of overseas operational capacity are bound to be affected.

Depending on the severity of the situation, even businesses that are 100 per cent home grown face falling profit margins. American investors have already begun to tighten purse strings as volatile share markets bounce all over the place. Falling consumer confidence means less spending, eventually slowing the US economy. In fact, Goldman Sachs predicts that US economic growth will drop by a full percentage point this coming year because of the European crisis.

TIME TO PANIC?

If you’re a small business and planning to expand overseas, or already have a significant European presence, then you should seriously consider hedging against currency fluctuations.

Besides that, the best thing for small business owners to do at this stage is to keep an eye toward Europe without panicking. It’s not necessary to uproot your entire supply chain for instance, but you should be examining your business, to have a good understanding of who your customers and suppliers are.

Ultimately the extent of a recession in the US will be determined by the effectiveness of the officials in Europe to deliver on their promises. However, even financial grand poobah, Warren Buffet, is doubting Europe’s ability to dig itself out of the hole fast enough.