A European recession could have American consequences

Even with only about two percent of American exports going to Europe, a severe recession in the region would affect the US beyond the direct effect on exports. 

|
Petros Giannakouris/AP
Riot Police push back protestors, one waving the Greek flag, who try to enter at the Parliament building at Athens' main Syntagma square, during a 24-hour strike on Feb. 7, 2012. While U.S. exports to Europe are low, a severe recession could have an outsized impact on the U.S. economy.

Paul Krugman notes that only about 2% of America's GDP consists of goods exports to Europe and argues that even after increasing that number by 25% (to 2.5% of GDP) to take service exports into account that means that there is little reason to expect a downturn in the European economy to affect the U.S. economy. 

But first of all, while no country or region specific data for service exports exists, total service exports is more like 40% of goods exports as goods exports was $126.6 billion while service exports was $51.3 billion. America's exports consists of services to a much higher extent than most other countries (with some exceptions like Britain and Hong Kong).

Still, with a 2.8% of GDP estimate for total exports, even a 25% decline in exports would at most reduce GDP by only 0.7%, less to the extent that the value of exported goods consists of imported input goods.

However, while America because of its size is less sensitive to developments in Europe, and other parts of the world, than most other countries, a severe recession in Europe would affect it beyond the direct effect on exports to Europe for two reasons.

One is that because other countries in the world also export to Europe, their economies will weaken too, weakening U.S. exports to those countries as well.

The second, and more important is the effect that globalized financial markets create. When there is panic in one market, other markets usually panic as well. Europe experienced that in 2008 after the Lehman meltdown. And if there is a similar meltdown now in Europe, America will experience it too.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to A European recession could have American consequences
Read this article in
https://www.csmonitor.com/Business/Stefan-Karlsson/2012/0208/A-European-recession-could-have-American-consequences
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe