The U.S. economy and stock market face severe consequences from the European financial crisis, which will not resolve itself without major debt restructuring, former Federal Reserve Chairman Alan Greenspan said.
"I think it's very dangerous," Greenspan said in a CNBC interview. "Everyone's got their fingers crossed."
As global policy makers struggle to find a solution to the daunting problems Greece and other nations face with sovereign debt , the primary debate in the U.S. is how much contagion there will be for the domestic economy.
For Greenspan, there is no question: The threat from Europe is real and it is substantial.
While U.S. banks don't have a comparatively high level of exposure to the sovereign debt itself, he said the domestic financial system is nevertheless reliant on the stability of its European counterparts.
The stock market, meanwhile, has been heavily influenced on the daily news reports coming out of Europe and the plethora of proposed solutions that emerge.
"This is an integrated system. The presumption that somehow the huge American banking system...is independent of Europe is, I think, just utterly unrealistic," the former leader of the U.S. central bank said. "It looks independent until it isn't."
Rising productivity is one among several signs that the U.S. economy is improving. But as long as Europe fails to devise a solution to its problems dangers remain to a full recovery, he said.
Primary among the fixes he believes will have to happen is a restructuring of Greek debt with substantial reductions in principalfor bondholders of the sovereign debt.
"There is no credible scenario for which I'm aware in which they can get by without very significant haircuts in their sovereign debt," Greenspan said. "The issue is one where, are they broke? Yeah, I think they're broke. Are they going to resolve the issue? In and of themselves I can't see how."
Anyone who thinks that isn't the case and that it won't affect the U.S. in a substantial way isn't facing reality, he said.
"If Europe wasn't out there...we would not be having the threat to our overall economy," Greenspan said. "The size of the problem coming from Europe — I don't think it could be overestimated. Economists who feel comfortable they can split the effects of Europe from the rest of the forces that generally impact the United States hasn't been around very long, I'm afraid."