im Duy argues that the European crisis may do more to help the US recovery than hurt it:
Is the European Crisis a Net Positive for the US?, by Tim Duy: How will the European crisis feed into the US outlook? I clearly recall JP Morgan making a recession call in the wake of the Asian Financial crisis, predicting a US recession on the back of a drop in net exports. While a drop in net exports did occur, domestic growth more than absorbed the impact. The US recession was delayed until the impact of tighter monetary policy, higher energy prices, and the popping of the tech bubble all came home.
I can see a similar pattern of events evolving now.
First off, I think it unlikely that an export demand shock alone is sufficient to push the US economy back into recession. Menzie Chinn tackled this issue back in 2007, arguing at the time it was unlikely a rise in exports would stave off a recession. The reverse logic holds as well; US recessions look to be driven by sharp declines in domestic absorption, not exports.
That is not to say that slowing exports would not crimp US growth. The rising Dollar not only stresses US exports to Europe, but China as well. As Calculated Risk notes, European exporters are now more competitive in China compared to their US counterparts. Moreover, the falling Euro may delay any eventual loosening of Chinese currency policy, as policymakers fret about the effects of one falling currency, let alone two.
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http://economistsview.typepad.com/economistsview/2010/05/is-the-european-crisis-a-net-positive-for-the-us.html
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