Workers march during a demonstration against the government's economic austerity measures in central Rome on Tuesday. (ANDREAS SOLARO/AFP/GETTY IMAGES)

A steep new decline in U.S. stock markets Tuesday underscores a rising risk for the nation’s economy: that Europe’s fiscal troubles will spread across the Atlantic and weaken growth on these shores.

The Standard & Poor’s 500 was down 2 percent at noon Tuesday, even as the only news about the U.S. economy since Friday was a surprisingly positive report about the nation’s service sector. The markets were instead responding to the growing financial instability in Europe, where stocks plummeted more than 5 percent in an alarming sell-off on Monday, the Labor Day holiday in the United States. Investors are increasingly fearful that the economies of Europe’s largest countries, particularly Germany, are slowing, and that the governments on the continent will not be able to agree on measures to avert a deeper crisis.

In effect, the value of the U.S. corporate sector--and by extension, Americans’ wealth and business confidence--is being determined by events in Brussels, Frankfurt, Rome and Berlin.

Indeed, this is not the first time there have been signs that Europe’s troubles are having an outsized impact on the United States’ own financial stakes. It was in the spring of 2010 that the U.S. economy seemed to be finally taking off--only to falter at exactly the time the European crisis became more severe. Similarly, as the European situation has become more dire in the early months of this year, growth in the United States slowed once again.

The $240 billion worth of goods and services that the United States exported to Europe last year amounts to only 1.6 percent of U.S. economic activity. But the events of the last year show how the links, particularly through financial markets, are far greater than that number would suggest.

Global investors increasingly view risk in binary terms: When things are looking calmer on the global economic front, stock markets rise across the world; when things look scarier, they fall. Instead of differentiating among the economies in the United States, Europe and Japan, market measures are moving closely in tandem.

Moreover, because major U.S. companies have operations around the globe, executives are more likely to try to offset weakness in their overseas operations by pulling back on hiring and capital investment domestically, even if the U.S. economy is proceeding apace.

More than ever, in other words, Europe’s problems are our problems.

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