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Friday, February 17, 2012 - 16:00

White House Remains Concerned About EU Risk To US,Global Econ


--'Significant Risks' Remain Despite Measures To Contain Crisis
--US Econ Performance To Depend In Part On Swift Resolution To Crisis

WASHINGTON (MNI) - The White House Friday served up a blunt assessment of the risks posed by the drawn out Eurozone debt saga, noting the risk of a "significant" impact on employment in the United States, and emphasized the importance to both the U.S. and global economies of a rapid resolution to the turmoil.

In a section of the administration's 2012 Economic Report of the President devoted to the euro area crisis and its implications for the U.S. economy, the White House warned that while European leaders and the European Central Bank have introduced measures that have helped contain the crisis, "significant risks remain."

"Global and U.S. economic performance will depend, in part, on the swift resolution of problems in the Euro area," the White House said.

The sovereign debt crisis has in turn sparked a banking crisis on the continent, and the White House warned that given the interconnected nature of the European and U.S. financial systems, "adverse financial conditions in Europe can be transmitted to American financial institutions."

In addition to worries over contagion via financial channels, the White House said a slowdown in Europe could affect the U.S. economy through trade and direct investment. Europe accounts for more than 20% of U.S. goods exports and nearly 40% of U.S. service exports.

"A severe financial episode in Europe could reduce exports from businesses throughout the United States," the report said, warning that "Shrinking purchases of American goods and services by Europeans could have a significant impact on U.S. employment in several states."

In addition, declines in output, profit, and investor confidence in Europe could have "an adverse effect on the ability and willingness of European firms to invest in American firms and jobs."

It noted that Europe accounted for $173.2 billion, or 76%, of all foreign direct investment inflows into the United States in 2010.

So while reiterating that Europe has the capacity to tackle the crisis through "decisive policy action" and "a credible financial backstop," the White House said the administration has made clear that the international community has a strong interest in the crisis being successfully resolved.

"In such times of global economic and financial disequilibrium, U.S. coordination with international partners remains essential," the White House said.

The Administration again called on European authorities to move ahead on a variety of measures, including "a more substantial financial firewall to ensure that governments can borrow at sustainable interest rates while executing policies to strengthen the foundations for growth and to reduce their debts; and measures to ensure that European banks have sufficient liquidity and are adequately capitalized to maintain the full confidence of depositors and creditors."

** Market News International Washington Bureau: 202-371-2121 **

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