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6 Reasons Why the European Debt Crisis Matters to You

The panic across the Atlantic affects your wallet

3. Wall Street watches Europe 24 hours a day.

This is perhaps the easiest way to see Europe's impact on your net worth. Every time political leaders there get together to grapple with the crisis, every time a bank there discloses something new about its financial health, markets react based on perceived impact on the world economy.

Does the European Central Bank seem to be stepping up with a rescue plan? Up go your holdings. Has German Chancellor Angela Merkel frowned on suggestions of a bigger role for her country in a rescue plan? Down go your values.

Nevertheless, most financial advisers would tell you not to look at the fluctuating value of your portfolio on a daily, or even monthly basis, but to stay diversified and not be swayed by short-term news. Investing and protecting your retirement remains a patient, long-term proposition — not something for day traders.

4. Your IRA or pension plan may contain more European assets than you realize.

Since most portfolio managers believe in widely diversifying their portfolios, many Americans own more European assets than they know. Many mutual funds that boast of their international exposure to growth companies in China or India also own a large amount of European assets.

For example, as of April 30, almost 55 percent of the holdings of the Vanguard International Explorer Fund were European.

So you might want to examine the underlying holdings of your funds to understand how much leads to the eurozone. The same goes for U.S. bank stocks, which could take a beating in a long-term debt crisis across the Atlantic.

5. The debt crisis makes European goods cheaper.

While sales of U.S. goods in Europe may be crimped, Americans who have money to spend should find prices of European goods more manageable as the euro currency loses value. Near the end of last year it took more than $1.50 to buy a single euro. Now it costs just $1.26.

For Americans, this could lower the price of French wine, German cars or an idyllic weekend in Rome. Should Greece actually abandon the euro and return to the drachma, as some predict, U.S. tourists could find island beaches there the deal of the century.

But the U.S. hotel and restaurant industry could lose out, especially in popular tourist destinations such as Florida, if Europeans feel too jittery to travel.

6. The debt crisis could keep interest rates at record lows.

As Europe tries to cut spending and pay down its debts, the focus on austerity could create a spiral of deflation that keeps interest rates at rock bottom. Indeed, mortgage rates remain at rock-bottom lows.

While this is great news for young Americans hoping to buy a first home, it’s devastating for retirees who want to wrest more monthly interest income from their savings. Retirees might reluctantly put more of their funds into the volatile stock market, where returns can be higher but are never guaranteed.

Michael Zielenziger writes on business and the economy. He lives in the San Francisco Bay area.

You may also like: 10 steps to get you ready for retirement. »

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