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6 Reasons Why the European Debt Crisis Matters to You

The panic across the Atlantic affects your wallet

Your connection to “Grexit” — investor shorthand for a possible decision by Greece to abandon the euro currency — may, at first blush, seem rather remote.

See also: How much U.S debt is owned by foreign countries?

But as our economy grows more global and interconnected, panic across the Atlantic can help determine the safety of your job, the balance of your bank accounts and the security of your retirement. Often it’s for the worse, but there can be an upside, too.

Financial trouble in Europe can be trouble for American investors-  in Spain protesters marched over austerity cuts

Demonstrators in Madrid protest Spain's austerity measures. — Photo by Ervin Sarkisov/Corbis

1. The crisis means fewer jobs in America.

When Texas-based Dell Computer announced a disappointing 33 percent slide in revenues last week, trouble in Europe was part of the problem.

When consumers in Europe close their wallets, American manufacturers feel pain. They get reluctant to hire new workers and may have trouble retaining current employees.

The eurozone — the 17 countries that use the common currency — is America’s third-largest export destination. The euro crisis has already tipped much of the region toward recession, and growing concern about the solvency of Spanish banks and Greece’s prospects don’t boost investor confidence.

States like South Carolina and Washington could be particularly hard hit if Europe falls. The Wells Fargo Securities Economic Group, for instance, estimates that one-third of South Carolina’s exports head to Europe.

Some U.S. economists believe Europe could cut 0.4 to 1 percent off U.S. growth in 2012 — at a time when our domestic economy is just beginning to show life after a long downturn. Moreover, the continuing uncertainty helps explain why U.S. corporations are hedging their bets and hoarding handsome profits, rather than investing in new operations or hiring new workers.

2. U.S. banks have moved aggressively to scale down their European holdings.

Fear of having to shoulder losses in Europe is making American banks less willing to make new loans at home, even if borrowers have excellent credit. This is already making it harder for U.S. utilities, mining firms and other capital-intensive industries to finance new construction and real estate projects.

“The U.S. is tied into the global economy through interest rates, through trade, through exchange rates, through credit spreads, through bank borrowing costs, and so if Europe spirals downward, it will certainly impact us,” says Richard H. Clarida, a Columbia University economics professor.

Likewise, Americans who work for troubled foreign banks are more likely to face layoffs if those banks are forced to restructure.

Next: Lower French wine and German car prices. »

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