James Oster, senior vice president and international foreign exchange manager for KeyBank, was the keynote speaker for the Thurston County Economic Development Council’s annual economic update.
Oster gave an overview of the euro currency and what ails several European countries – problems that have grabbed headlines for months, affecting U.S. investor and consumer confidence.
It’s a serious issue, Oster said, because the European Union, in which 17 countries use the euro as their primary currency, is the world’s largest economy.
As an economy, it represents 25.2 percent of global gross domestic product, he said. It also is the world’s largest trading partner, generating $4.5 trillion. Europe represents about 15 percent of Washington state exports and 10 percent of its imports, Oster said.
The drag on the economy won’t result in a double-dip recession, but job growth will be a challenge and overall economic growth will be “methodical,” he said.
Eurozone countries hit hardest by the crisis are the PIIGS: Portugal, Ireland, Italy, Greece and Spain. All but Italy have received financial bailouts.
Those countries’ problems partly stem from the U.S. financial meltdown in 2008, which triggered banking problems and housing collapses in Ireland and Spain, for example.
“If the U.S. economy catches a cold, everyone else sneezes,” Oster said.
Not all of it can be blamed on the U.S. In Greece, for example, the country’s “shadow economy” – those who don’t pay taxes – is thought to be as high as 30 percent, he said. In the U.S., it’s estimated to be about 7.8 percent, Oster said.
Although Oster doesn’t expect the breakup of the 17-country Eurozone, its problems remain severe. Bank depositors are fleeing the Greek banking sector and unemployment remains above 20 percent there; it’s as high as 50 percent for those 25 and younger, which could contribute to civil strife, he said.
The U.S. financial picture also isn’t perfect, Oster said.
The U.S. budget deficit as a percentage of annual GDP is 8.7 percent. To qualify for the Eurozone, European countries had to have less than 3 percent, which would make the U.S. “not one of the stronger European countries right now,” he said.
Total U.S. debt is “well over 100 percent of GDP,” Oster added.
Once the European debt crisis is under control, the world might turn its attention to Japan and its economy. Total Japan debt as measured against GDP is 230 percent, he said.
“Japan is a serious, serious, serious, serious problem,” Oster said, adding that its economy hasn’t experienced strong growth in two decades and its population is shrinking.