Flip to your local NPR channel and you’ll hear a lot of talk about Europe’s economy. Greece still gets most of the headlines, but Italy and Spain also get mentioned. No one wants these countries to fail, but why does it matter so much to Americans that we hear about it every time we turn on the radio?
The American Economy Has Close Ties to Europe
Put simply, the United States has money in Europe. Banks operate across international borders, American companies have locations throughout Europe, and the U.S. government has money in European countries. A crash in Europe, therefore, would have an impact on America’s economic recovery.
The good news is that economists can see these crashes coming, unlike the 2007 disaster that seemed to come out of nowhere. By May 2012, American banks had pulled 40 percent of their money out of Greece. They still had $5.8 billion there, but banks were prepared for a crisis if it happened.
The bad news is that a default in Greece could have pulled other EU countries into a quagmire of unsupported debt. Spain and Italy would likely default, too, which would put a lot of pressure on Germany and France. The U.S. can protect itself from a Greek default, but a widespread EU default would have a huge impact on U.S. companies, banks, and government interests.
The American Economy Needs European Buyers
The other, potentially bigger, problem is that American companies need Europeans to buy their goods. Overall, the U.S. had a trade deficit of near $635 billion in 2010. That isn’t terrible (the U.S. has certainly had much larger trade deficits in the past), but it means the United States imports more than it exports.
That’s not good for jobs — at least not American jobs. If fewer people in Europe don’t have money to buy American-made products, then the unemployment rate in the U.S. could go even higher.
GM, for instance, says that its 2012 first quarter vehicle sales in Europe were 12 percent lower than the same quarter in 2011. That means the company is selling fewer vehicles in Europe, which will eventually mean that factories will need fewer employees for the European marketplace.
Some of those factories are located in Europe, so we’re essentially talking about European rather than American jobs. But any financial loss by GM and other companies like it is a loss for the American people, in terms of employment and the value of the United States dollar.
America’s import to export ratio is still fairly healthy, but decreased demand around the world could mean fewer jobs in the States. This would mean that Americans have less money to spend, which could pull Europe, America, Asian countries, and potentially other parts of the world, into a long-lasting depression.