Why the unstable euro financial market hurts the U.S. economy

July 13, 2012

July 13, 2012                                                 Richard Wobbekind

Although the financial troubles of Spain and Greece are far away across the Atlantic Ocean, they are closer to home than you think and are affecting the American economy, says Richard Wobbekind, an economist with the CU-Boulder Leeds School of Business.

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Why the unstable euro financial market hurts the U.S. economy

July 13, 2012                                                 Richard Wobbekind

Although the financial troubles of Spain and Greece are far away across the Atlantic Ocean, they are closer to home than you think and are affecting the American economy, says Richard Wobbekind, an economist with the CU-Boulder Leeds School of Business.

CUT 1 “It’s definitely impacting the national economy in terms of the uncertainty. That’s one of the things that’s feeding the uncertainty in the business community in particular. (:11) That’s really one of the reasons why we are seeing GDP growth in this past quarter below 2 percent. We really thought it was going to be over 2 percent. Not a lot over but a little over at least.” (:20)

Wobbekind says that uncertainty is feeding fears by some people that what happened in the U.S. in 2008 will happen to Europe in 2012.

CUT 2 “You can harken to 2008 and say, ‘Are we going to go through the same kinds of financial chaos in that part of the world as we did in the U.S.? How much transparency is there? How many of these banks are linked together?’” (:13)

Which, in turn, says Wobbekind, makes Americans wonder that if there is a European bank crisis will it impact American banks? He says not as much as people might think.

CUT 3 “The tendency is for people to think that the U.S. banks are going to have potentially significant impacts from the European debt. There really isn’t as much linkage with the U.S. banks to the European issue. It’s more the European banks to the European banks.” (:13)

But while U.S. banks may not be linked closely with European banks, Wobbekind says what happens in Europe will be felt throughout the world markets.

CUT 4 “The European economy is a big economy. If the European economy starts to go into broad-based recession you start to take everybody down because of the banking crisis. Then you have a real slow down in world GDP growth. (:15) And that impacts the U.S. because we trade a lot with Europe. It impacts China because they trade a lot with Europe and it impacts India. So it really brings down world growth rates and that filters back to the U.S. ” (:27)

 

-CU-

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