What Does the EU Crisis Mean for the U.S. Economy?

Abstract

The Europe economy is on the edge of a recession unlike anything since World War II. Many economies in the Euro zone have already been confronted with the sovereign debt crisis, and there is little hope for a recovery in 2012. The EU crisis has important policy implications for the rest of the world, particularly for the United States, which is its main trade and investment partner. This paper emphasizes on trade, investment, stock, and monetary transmission channels of contagion from Europe to the United States and estimates the effects of the EU crisis on U.S. exports, the inflow of foreign direct investment (FDI), the stock market, the U.S. banks’ claims on the European banks, and the U.S. foreign-owned assets in the EU. The results of this study indicate that the U.S. economy will be severely affected by the EU crisis.