Skip to: Content
Skip to: Site Navigation
Skip to: Search


The Monitor Breakfast

CBO director: more eurozone turmoil would be 'bad news for US economy'

Congressional Budget Office Director Douglas Elmendorf, at a Monitor breakfast Wednesday, said the challenges Europe faces now are 'larger than ever' and weighing on the US stock market.

By Staff writer / June 13, 2012

Congressional Budget Office (CBO) Director Douglas Elmendorf testifies on Capitol Hill in Washington, in this October 2011 file photo, before the Joint Select Committee on Deficit Reduction.

J. Scott Applewhite/AP

Enlarge

Washington

Congressional Budget Office (CBO) Director Douglas Elmendorf said he was “quite concerned” about the European debt crisis, noting that it is “unclear” whether the euro can be preserved.

Skip to next paragraph

“If European economies slow more than they already have, or especially if there is some greater tumult in the European financial system, that will be bad news for the US economy,” Mr. Elmendorf said Wednesday at a Monitor-hosted breakfast for reporters.

There were signs this week that the European debt crisis, which first affected Greece, was spreading elsewhere on the continent. Borrowing costs for both Italy and Spain rose sharply, indicating lack of investor confidence that the problem can be contained. One key concern is whether Greece will remain in the eurozone after a scheduled June 17 election.

“Although the European governments have managed a succession of times to pull their economies and their financial system back from the brink, the challenges they face are larger than ever now and getting out of their current situation is very difficult, and whether they will be able to preserve the euro I think is unclear,” Elmendorf said.

His concerns are shared by International Monetary Fund Managing Director Christine Lagarde. In a speech Tuesday she said, “Tensions are on the rise again, and financial stability risks have once more moved front and center. Great uncertainty hangs over global prospects.”

The CBO director said “there is one silver lining in the cloud.” He noted that fears about the stability of the European financial system “tend to increase the demand for US Treasury securities and thus push down the interest rates on those securities, push down the cost of our borrowing.”

Still, the risks to the US economy from European financial upheaval outweigh any positive effects. “The fears of what is happening in Europe and what might happen in Europe are weighing on our stock market. They are weighing on business confidence and thus on hiring and investment in this country. And again, if something goes even more wrong there, that can reduce the exports that we can send to Europe and could cause a great deal of further problems in our own financial system,” he said.

The CBO is in the process of updating its economic forecast for release later this summer. It will be difficult to factor the European debt situation into the CBO forecast. “How to quantify that … either the risk of something worse happening or the effects on the US economy is very difficult, “ Elmendorf said.

Permissions

Read Comments

View reader comments | Comment on this story
The Monitor Breakfast on FORA.tv

Subscribe for full video access to one of Washington's premier forums

  • Full-length Breakfast videos
  • Access to the video archives
  • E-mail alerts after every Breakfast event

Sign up for:

Sign up for full video access

Already a subscriber?

Log-in

Doing Good

 

What happens when ordinary people decide to pay it forward? Extraordinary change...

Danny Bent poses at the starting line of the Boston Marathon in Hopkinton, Mass.

After the Boston Marathon bombings, Danny Bent took on a cross-country challenge

The athlete-adventurer co-founded a relay run called One Run for Boston that started in Los Angeles and ended at the marathon finish line to raise funds for victims.

 
 
Become a fan! Follow us! Google+ YouTube See our feeds!
[Alt-Text]