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article imageEurope casts a wary eye on U.S. debt crisis

By Karen Graham     Oct 9, 2013 in Business
The implications are grave for the global economy if the U.S. budget crisis is allowed to end in a default on October 17, while Europe's shaky economic recovery would fall victim before it even had a chance to rebound.
Washington's growing budget crisis has Europe and the rest of the world keeping a wary eye on the calendar. As the October 17 default date draws nearer, Europe's slow, but rocky recovery from their recession is beginning to look like it might be in peril.
Few people expect the U.S. to default, but as the date for an "Economic Armageddon" draws closer, many financial leaders are beginning to speak out concerning the implications the crisis would have on the economies of states in the Eurozone.
Mark Wall, London-based co-head of European Economics in Deutsche Bank has pointed out that Europe's economic recovery is still quite fragile, and still in it's infancy. As such, it is expected to be vulnerable for several more years as they "get their house in order."
Analysts are just beginning to make presumptive forecasts on any expected economic growth in the Eurozone's 17 members. They have forecast that economic growth figures for 2013 are expected to drop 0.4 percent, after a 0.6 percent drop in 2012.
The International Monetary Fund is also cautiously optimistic, forecasting on Tuesday that the Eurozone should set a 1 percent growth record in 2014. While only a modest figure, it is actually higher than originally expected. The IMF translates this increase in economic growth figures to growing consumer confidence and consumer spending.
The IMF singled out Europe's top three economies, France, Germany and Great Britain, saying the potential for a collapse of the U.S. dollar in the event of a default would wipe out Britain's 1.9 percent anticipated economic growth figures for 2014, as well as the those of France and Germany.
Because the economies of the U.S. and Europe are so intertwined, and with the U.S. being Europe's leading trading partner, a default would play havoc with European exports, making them more expensive. Additionally, with the U.S. dollar weakening on Asian and European markets, Europe's competitiveness will also be undermined.
The bottom line is going to be hard to swallow, though. A U.S. default on its debt would send the world into an economic crisis that would be unimaginable. In Asia, it would devalue U.S. Treasury Bonds being held by China and Japan by the tens of billions of dollars, and could easily cause a collapse of the world trade that their economies depend on.
More about Eurozone, Economic recovery, Great britain, Budget crisis
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