NP - Eurodoom Continues Apace—Is America Next?

[David Morris]

http://www.washingtonmonthly.com/political-animal-a/2012_05/eurodoom_continues_apaceis_ame037566.php

The natural question for Americans would be how much we would be hurt
if the Eurozone suffered a disorderly breakup (and, let’s be clear, it
would be extraordinarily bad at least within the European periphery,
as a bunch of the world’s largest economies watched their banking
sectors collapse at the same time). According to Paul Krugman, US
exports to the Eurozone only total about 2 percent of GDP, and since
imports wouldn’t utterly cease even in the worst case, that mechanical
effect of reduced foreign purchases of our goods and services wouldn’t
be catastrophic.

But as Krugman notes, the real danger is through the financial
channel. Modern banks are huge and heavily interconnected across
countries, and some are thoroughly rotten. Bank failures across Europe
could potentially trigger a Lehman-like financial shock in the US. One
would think, given how long everyone has been watching the Euro
problem, that banks would have figured out ways to protect themselves,
but JPMorgan’s recent monster loss and MF Global’s bankruptcy (which
killed itself gambling on European debt, remember) have thoroughly
undermined my confidence.