Although European authorities are taking steps to address the region’s fiscal problems and shore up its banking system, there is some risk that financial difficulties in the euro zone could intensify substantially. In such circumstances, the direct hit to U.S. trade associated with a deep recession in Europe could be considerable.
Given the significant financial linkages between the United States and Europe, a worsening crisis in Europe would likely lead to additional strains in U.S. financial markets, resulting in yet another blow to the U.S. economy.