Europe's Growth Has a Limited Impact on the United States

The euro zone crisis is very bad news for the people of the region, especially in the peripheral countries where unemployment is soaring well into the double digits. However its impact on the economic situation in the United States has been hugely exaggerated, as in this NYT article that told readers:

"With his own re-election chances directly tied to the European economic crisis as it drags down growth in the United States, Mr. Obama desperately wants Ms. Merkel to loosen the reins on spending and the austerity programs that have been imposed on Greece and the other struggling euro zone economies."

In fact, exports to the euro zone countries are less than 1.5 percent of GDP. Even if these were to fall by 10 percent (a huge decline) it would have only a minimal impact on growth in the United States. Also, the euro zone crises has helped to lower interest rates in the United States as investors turn to Treasury bonds as a safe haven. This has had a modest positive impact on growth in the United States.

Of course the situation would be different if there were a complete meltdown in the euro zone. This could lead to a Lehman-type financial crisis, which would be a serious hit to growth.

A Call for Ongoing Bank Bailouts
written by Ron Alley, June 20, 2012 6:25

The NYT piece struck me as off the mark. The bottom line is that the Times is calling for an ongoing bank bailout. A number of European banks and probably some banks in the United States are likely to fail without ongoing bailouts. To be sure the arcane structure of the international currency and bond speculative trading by banksters and the lack of information on the exposure of banks to specific risks make predicting the effects of the Merkel policies difficult and uncertain. But the recent trading debacle at Citibank resulted from speculative trades involving currency and bonds is a far more likely and far more destructive result of a slowly evolving Eurozone crisis.

The steps taken by Germany to address the Eurozone crisis and those proposed by others are essentially ongoing bank bailouts. The austerity is but a reflection of the fact that governments have not been willing to structure the bank bailout in a manner that protects their economies and people. We have seen this in the United States and Japan. We are watching it happen in the Eurozone.

...
written by Stuart Levine, June 20, 2012 9:16

I think that you may be missing one factor here. While I am no believer in the Confidence Fairy, it does appear that something along that line at work here. Hearing perpetually dire warnings about a potential European economic meltdown does encourage money hoarding and thus inhibit demand. Further, of course, in some industries, autos for instance, Europe is a major U.S. export market.

Headlines, Latest Headlines - What a Joke!
written by James, June 20, 2012 1:23

There have been so many headlines written and broadcast by media outlets calling the European crisis will dictate whether Obama will or lose.

In fact, one well-respected talking head said the only toss-up state that matters in this cycle is...drum roll, Germany.

Europe's Growth Has a Limited Impact on the United States

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