Thursday, December 08, 2011

Eyes on Europe, Part 330: What To Watch For


I think of the European debt crisis in three layers:
  1. national debt crises in several European countries;
  2. a structural crisis of the Eurozone; and
  3. potential banking crises in Europe and the U.S.
He thinks that the under-analyzed (and reported) part is Part Three.

...From an American self-interest perspective, the direct economic effects of a Eurozone collapse on U.S. exports would be very bad and could easily tip the U.S. into recession. But the effects of a collapsed Eurozone or an Italian default on European banks, and the indirect effects that are passed through to American banks, could be far, far, worse. Think 2008 financial crisis worse.  The worst case scenarios for Europe appear to pose a low probability, high consequence threat of another horrific U.S. banking crisis.  This is why American policymakers should care deeply about Europe — because if the Europeans screw it up badly, it could do serious damage to the American economy, transmitted through still flawed and vulnerable banking systems.

So.  While it is not likely (in his opinion), IF it happens, it will be Gotterdammerung.

He's paying very close attention to Italy, by the way.


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