The Washington Post

What happens in Europe doesn’t stay in Europe #Euromess

Think of the burgeoning economic crisis in Europe as the anti-Vegas: What happens there doesn’t necessarily stay there. The impact could spread just about everywhere, especially the United States.

That’s the big takeaway from a new Citigroup report that Planet Money’s Jacob Goldstein points us to. It shows how, over the past decade, large European economies and the U.S. economy have become much more correlated — which is to say, what happens in one happens in the other.

What happened over the past decade? Part of the explanation is “trade penetration,” says Steven Wieting, the Citigroup economist who authored the report. But what really secured the connection, he thinks, was the financial crisis in 2008.

“That financial downturn had such an overwhelming impact, it’s not as if those economies could throw it off as an insignificant event,” he told me in a interview yesterday. “Now, it seems unlikely we’d have a period where the United States thrives and the euro area contracts significantly. There would tend to be financial overspills.”

To gauge how much of an overspill the United States will see, Wieting is keeping a close eye on European officials. “I’m looking whether they’re able to leverage resources, and the extent they can protect themselves,” he says. “If there’s a treatment that looks favorable to one country, for example, that could raise other countries’ confidence. It’s really a complex area with a long list of concerns.”

But without knowing where the European officials will eventually land, Wieting still sees the burgeoning crisis as a big question mark. “It all depends on what European officials do,” he says. “This could really be anything from benign to meaningful to extremely damaging” for the United States.


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