WASHINGTON – Anxiety about Europe’s debt crisis last month caused U.S. stocks to suffer their worst month in more than a year. Yet many experts say fears that Europe will deal a sharp setback to the U.S. economy are overblown.
They note that trade between the U.S. and Europe is comparatively small. U.S. banks do lend to their European counterparts and hold billions in investments in those banks and other European firms. But U.S. banks have enough capital to withstand losses from a European crisis, analysts say.
In addition, the European Union is preparing a $1 trillion bailout for weak member states. And its central bank has begun buying government debt to protect European banks – and their U.S. counterparts – from the risk of default by EU countries.
The anxieties that have spooked U.S. stock markets could linger a while. The Dow Jones industrial average has fallen more than 12 percent since late April. But the foundations of the U.S. economy remain secure, experts say.
“The physical linkages with Europe just aren’t big enough to undercut the U.S. economy,” said Ethan Harris, head of North American economics at Bank of America Merrill Lynch.
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