The Corner

The one and only.

The E.U. Contagion


It is hard to tell exactly how the European crisis will play out. I think we can predict that if Greece defaults on its debt, then Portugal is likely to be next. The question of whether a Greek default will eventually affect Italy is anyone’s guess. But what about the impact of the E.U. crisis on the United States? Over at the New York Times, Paul Krugman doesn’t seem too worried, with one exception:

The map above — taken from here — tells us that overall, exports to Europe are just 2 percent of GDP. Some states, notably South Carolina, are more exposed (presumably because of those European-owned auto plants). But Obama isn’t going to win South Carolina in any case. And more broadly, even a sharp fall in exports to Europe would be only a small direct hit to demand.

OK, caveats: this only measures goods exports, and we should mark the numbers up maybe 25 percent to take account of services. Also, exports aren’t the only channel: if European events cause a Lehman-type event, disrupting financial markets world-wide, all bets are off.

At the Washington Post, however, Ezra Klein reminds us of this chart:

It comes from this post by Brad Plumer back in November.

What is your sense of the U.S. exposure to a disaster in Greece? I tend to be pessimistic.

Update: Matt Yglesias, over at Slate, is relatively more optimistic about the impact of a EU crisis on the US than he was in the past:

European banks haven’t collapsed, and American officials, American banks, and American nonfinancial firms have all had time to start thinking through the implications and insulating themselves. That’s been an extra source of problems for Europe but it’s good for us. The other factor is that while Europe’s leaders haven’t hit upon a way to forestall a years-long span of catastrophically high unemployment and falling living standards, they do appear to be really really really really committed to saving banks. This kind of “bankers and rich people first” approach to coping with an emergency is terrible for the average European, but it does take care of our main concern from Europe, which was that we might get hit with a sudden credit crunch.



Sign up for free NRO e-mails today:

Subscribe to National Review