A Eurozone Crash Would Hurt the United States
When the Bank of Italy recently posted that 30 deputy assistant jobs were available this year, it got a big surprise.
This is a junior position that pays 28,000 euros a year (equivalent to US$33,000). Guess how many people applied for these 30 jobs? Eighty thousand! This means the central bank of Italy received almost 2,700 applications for each job it posted. (Source: “More than 80,000 Italians apply for just 30 bank jobs, as economy remains in doldrums,” The Telegraph, July 3, 2017.)
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But this isn’t even the worst part. The Bank of Italy shortlisted 8,000 applicants who were first-class graduates and who had solid academic backgrounds. Meaning, we are seeing well-trained and highly-educated individuals applying for low-skill, entry-level jobs.
Mind you, this isn’t the first time we have seen something like this in Italy. In 2015, the region of Umbria posted vacancies for 94 public administration jobs and 32,000 individuals applied for them. In Milan, 10 nurses were needed and 10,000 job applications were submitted. (Source: Ibid.)
I travel to Europe on a regular basis to gauge economic conditions in the eurozone. I speak with the locals and business people there. In Italy, I am most comfortable, since I speak the language and I can get a real feel for economic conditions there.
Why is this important? The European Union (EU) is the world’s second-biggest economy after the United States. Then comes China, followed by Japan.
Thanks to globalization, everything is connected, one way or another. And if the world’s second-biggest economy is in trouble, the consequences will be global, especially for the U.S. economy and stock market. In the same way that the American-born credit crisis of 2008 crashed the eurozone economy, a collapse in the eurozone now would affect us here at home.
To provide some perspective, in the first quarter of 2017, 11 of the huge Dow Jones Industrial Average (DJIA) companies provided stats on their sales in Europe. Half of these companies reported sales growth that ranged from zero to declining. (Source: “Highest Number of DJIA Companies Reporting Sales Growth in Europe since 2014,” FactSet, May 26, 2017.)
American banks have substantial exposure to the eurozone’s financial system, since all of the major banks in the U.S. have some operations in the common currency region.
We can’t ignore what’s happening in the eurozone. It’s a risk that has the ability to cause a lot of trouble ahead. Take Germany out of the equation and I believe that the eurozone is in a depression. This is just another negative for an already-overpriced U.S. stock market.
