Thanksgiving. What a great holiday. Family, friends, turkey, stuffing, apple pie (not a big pumpkin pie fan). And perhaps, if we are true to the spirit of the holiday, a time to pause and remember all there is to be thankful for. My list contains the usual suspects—wife, kids, parents, friends, and others that no doubt would be on your list as well. One item that's on my list that would surprise me to find on yours would be Europe.
There's a little more to it than just "Europe." In 1985, my parents sent me to study in Europe for my junior year of college. Miami University (the one in Ohio) has a small campus in the Grand Duchy of Luxembourg, and I studied there from September to May of 1986. I still don't know how my parents did it on their wages—but they did, and I'm ever thankful because my year in Europe did as much to mold me as any other experience.
Of course today, not many people are feeling particularly thankful for the European debt situation, which is causing much-discussed pain and uncertainty in the global economy. It's a topic that's been on Atlanta Fed President Dennis Lockhart's mind. He shared this concern last month in a speech in Chattanooga, Tenn., when he noted that the U.S. fiscal situation and "financial instability from developments in Europe" were the most significant risk factors facing the U.S. economic outlook. As more news has come out of Europe in the weeks since then, many have discussed the risk of possible financial contagion from the situation there spreading "across the pond" to the United States.
Federal Reserve Vice Chair Janet Yellen mentioned the issue in her November 11 speech in Chicago:
"We are monitoring European developments very closely, and we will continue to do all that we can to mitigate the consequence of any adverse developments abroad on the U.S. financial system."
Fed Chairman Ben Bernanke offered some thoughts about the European situation in response to a question at his press conference following the FOMC meeting on November 2:
"...what we can do, really, is only a couple of things. One is that we can look at our own financial institutions and try to assess the exposures and the linkages between our institutions and those in Europe and the sovereign debt in Europe, and we've been doing that on a consistent basis. We've looked also, of course, with other regulators at money market mutual funds and other types of financial institutions that have connections to Europe...
"And the other thing that we can do is stand ready, if necessary, to provide whatever support the broader economy needs and the financial system needs, should things worsen. I mean, we are hopeful that the latest measures, vigorously implemented, will indeed ultimately reduce these stresses, but in the case that things do get worse, both monetary policy and our policies of lender of last resort are available to insulate the U.S. economy from the effects."
The other channel where problems in Europe can affect the United States is through international trade. The members of the European Union have accounted for roughly 20 percent of U.S. exports over the last decade. Thus, any slowdown or decline in economic activity in Europe would most likely lead to a decline in demand for U.S. goods there, which in turn would lead to a decline in U.S. exports to Europe.
How would such developments affect the Southeast? Over the past decade, the states of the Sixth District have shipped an average of nearly $22 billion worth of goods per year to the European Union member countries. The dollar value of these goods accounts for almost 19 percent of total exports from the six states in the region—a number similar to the United States as a whole.
The importance of Europe as an export market varies by state, as the table below shows. Complete data are available through 2009, but by using the 10-year average we can see the longer-term pattern.
Based on these figures, Florida ships the most goods in terms of value to Europe, but Alabama is more dependent on exports to Europe than any other state in the region. Georgia also sends a significant portion of its total exports to Europe. While there is concern about the financial impact of instability in Europe, a souring of economic activity across the Atlantic would also affect international trade. In either case, the region is not immune.
I'll be thankful when Europe's debt issue is resolved.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department