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June 12, 2012 > How Europe's debt crisis is affecting US economy

How Europe's debt crisis is affecting US economy

Submitted By AP Wire Service

Europe's crisis is having a broad effect on the U.S. economy. Some key areas:

- Falling sales for U.S. companies.

Europe buys 22 percent of the goods U.S. companies sell abroad. And U.S. companies have invested more than $2 trillion in European factories and operations. Among other companies, General Motors and Ford are losing money in Europe as middle-class Europeans cut back on auto purchases. U.S. businesses could also suffer a credit squeeze if troubled European banks reduce lending in the United States and pull money back home.

- Banks.

U.S. banks have gradually reduced their exposure to Europe. But investors are still concerned that a catastrophe in Europe could infect U.S. financial institutions. What most spooks investors is the worst-case scenario - the one that struck Wall Street in 2008: That banks would stop lending to each other over worries about each other's solvency. Once international banks lose confidence in each other, fear tends to spread quickly across oceans. The weakest banks can topple as investors and creditors panic.

- Financial markets.

U.S. stock prices have fallen sharply since early May, mainly over worries about Europe. Investors have focused on whether Spain will need a bailout, the consequences if Greece leaves the euro currency union and how American banks and other companies would be hurt by a prolonged European recession. May was the worst month for U.S. stocks in two years as concerns about Europe escalated. Bank stocks have been the weakest performers in the past month: They've lost nearly 8 percent as a group.

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