What crisis? Greek troubles that terrified markets in 2012 seem manageable now

The prospect of a Greek crackup isn't so terrifying anymore.

In 2012, financial markets were rattled by the possibility that Greeks would elect a left-wing government, default on their debts and drop the euro currency. The fears pushed the Standard & Poor's 500 stock index down nearly 10 percent that spring.

Here's how things look now: The left-wing party, Syriza, holds power in Athens. Greece actually did miss a loan payment to the International Monetary Fund late Tuesday. And the nation's future in the eurozone hinges precariously on a referendum Sunday.

Yet investors seem to be taking events in stride. Stocks around the world mostly rose Wednesday.

Part of the calm reflects hope that Greece ultimately will reach a deal with its creditors and that Greeks will vote Sunday to accept their demands and keep the euro. But investors also have been reassured by the defenses the Europeans have built the past three years to limit potential damage. Improving economic conditions in Europe and America help too.

"If things go off the rails and Greece is pushed out of the eurozone, the fallout should be temporary and modest," says Mark Zandi, chief economist at Moody's Analytics. "I don't think it's going to be a major financial event ... I don't think it would have a meaningful impact on European growth."

Some analysts still warn that the fallout from a so-called Grexit is unpredictable. Seven years ago, few thought troubles in the U.S. sub-prime mortgage market would trigger a worldwide financial panic and the worst economic downturn since the 1930s. Panic, however, can spread in surprising ways.

But Europe and the rest of the world appear to be in a much better position to avoid a doomsday scenario.

Here's a closer look at what's changed:

FEWER THREATS

Three years ago, it wasn't just Greece that worried investors. Portugal, Ireland, Italy and Spain, countries with a lot of government debt and shrinking economies, also scared them. Rescuing Greece was one thing. But if all five countries defaulted on their debts, investors thought, Europe's currency system would likely unravel since the combined group was too big to bail out.

And if Greece left the eurozone, they fretted, other countries might follow, threatening European economic and political unity.

Investors demanded onerous interest rates to hold the debt of the most vulnerable European countries. Rates spiked to levels that squeezed government finances and damaged fragile economies. In the early summer of 2012, the cost to borrow for 10 years topped 11 percent for Portugal, 7 percent for Spain and 6 percent for Italy.

Then, in July 2012, European Central Bank President Mario Draghi pledged to "do whatever it takes" to preserve the euro by pumping money into the financial system. His words reassured investors and rates started to come down. Now, even with the recent turbulence, 10-year government borrowing rates for Portugal, Spain and Italy remain below 3 percent.

IMPROVING ECONOMIES

The U.S. economy is now on more solid footing, which means it should be better able to absorb a blow from abroad. When Greece's troubles emerged at the end of 2009, however, the U.S. had just started to recover from the worst downturn since the Great Depression. When the European debt crisis flared up in 2012, the U.S. economy looked sluggish. Employers were adding an average of 133,333 workers each month and the unemployment rate was above 8 percent. The Federal Reserve was concerned enough to expand a huge economic stimulus program.

By contrast, employers have hired 3.1 million workers in the past 12 months, lowering the unemployment rate to 5.5 percent.

More importantly, the prospects for Europe's economy have improved: The IMF expects the 19 countries that use the euro will see economic growth of 1.5 percent this year, up from 0.9 percent in 2014. Since June 30, the region is benefiting from a big drop in the value of the euro against the U.S. dollar, a boon to European exporters selling their products to foreign customers.

STRONGER BANKS AND NEW FIREWALLS

The long-running debt crisis has given global banks plenty of time to cut their exposure to Greece. European banks, for instance, now have less than $33 billion in loans and other money at risk in Greece, down from $193.5 billion at the end of 2009. U.S. banks have $12.7 billion sunk into Greece, down from $16.4 billion over the same period, according to the Bank for International Settlements.

Last year, the European Parliament approved a plan that should let authorities move faster to close troubled banks, pay off depositors and creditors and avoid costly taxpayer bailouts, potentially limiting damage in a crisis. The plan moved supervision of the biggest banks from the national level into the hands of the EU-wide European Central Bank. The idea behind the shift was that national regulators were too likely to look the other way when banks in their country ran into trouble. Now, the ECB can work with governments to force struggling banks to raise money to stay afloat or shut them down.

True to Draghi's pledge, the ECB has pumped money into the European financial system. The ECB is already committed to buying 60 billion euros a month in corporate and government bonds to push down interest rates and help the European economy. If the Greek crisis worsens, it could calm markets by buying even more bonds and flooding financial markets with cash.

European authorities also created the European Stability Mechanism, a bailout fund that can lend to troubled countries when private investors won't.

"Europe is already prepared for a Greek exit," Andreas Andrianopoulos, a former Greek lawmaker, said Wednesday in a forum sponsored by the Wilson Center, a Washington D.C. think tank. "It was much different in 2012 when Europeans were not ready."

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Steve Rothwell in New York and David McHugh in Frankfurt contributed to this report.