European debt crisis poised to weaken U.S. economic recovery

the european flag flying, blue field with a circle of gold stars

Europe's debt crisis is proving harder to solve than originally thought and threatens to slow U.S. economic recovery. Flickr photo.

Europe’s debt crisis is endangering U.S. economic recovery in the era of globalization. The Euro hit a new four-year low against the dollar Monday. Greece, Spain, Portugal, Italy and Ireland are dragging down the European Union faster than a recent pledge of nearly $1 trillion dollars in bailout money can prop the alliance up. Britain’s pound also dropped Monday to its market rate against the dollar since 2009. Some economists believe a stronger dollar, weak Euro and depressed E.U. demand for U.S. exports could morph the E.U. financial crisis into a worsening global economic crisis.

Is E.U. financial crisis contagious?

While the U.S. economic stimulus package seems to have staved off disaster for now, the Wall Street Journal reports that Europe’s $1 trillion rescue plan won’t solve the debt problems of its weaker economies, which could weaken the U.S. economic recovery. Economists warn that the severe government spending cutbacks in store for some countries will only make things worse. The Euro’s slide already has the British Pound in need of a small personal loan. After rising to nearly the $1.50 mark after Britain installed its new coalition government, the Pound dropped to its lowest level against the dollar since March 2009, falling as low as $1.4256 Monday.

Euro falls against dollar

The E.U. financial crisis has dragged the euro down to about 14 percent on the dollar this year. CNNMoney.com reports that the Euro has slipped so far and so fast that some experts are now predicting what used to be unthinkable: The euro could actually trade at equal value with the dollar sometime in the not-so-distant future. The euro tumbled to a four-year low against the dollar in Asian trading, slumping to $1.2234 compared with $1.2359 in New York Friday. The European currency later stabilized during London’s trading day and was posting a small gain in late New York trading.

U.S. economy has a stake in Europe

The E.U. financial crisis has already had a profound effect on the U.S. economy. The stock market was battered earlier this month by fears that Europe has done too little too late to contain the European debt crisis. Two separate bailout packages announced in the past few weeks for Europe have failed to ease Wall Street’s nerves. But the U.S. economy as a whole has a stake in crisis Europe.

Europe’s U.S. imports falling

The E.U. financial crisis is already having an effect on European governments and consumers, who are cutting back on spending. CNNMoney.com reports that the European Union was the largest destination for U.S. exports in 2009. But through the first three months of 2010, the EU had slipped behind Canada. Europe’s imports of U.S. goods were still up slightly from the first quarter of 2009. But the growth was much slower than the increase in U.S. exports to Canada as well as other large trading partners such as Japan and Latin American nations such as Mexico and Brazil.

Crisis Europe feeds on itself

While nothing good for the U.S. can be expected from the E.U. financial crisis, the Wall Street Journal reports that a weak Euro and U.K. Pound should help British and European firms sell more products to U.S. consumers and those in countries that value their currencies to the dollar. But even this debt relief comes with a catch: Britain and the continent sell most of their goods to each other, and they’re all broke.

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