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How exposed is the US and Indiana to Greece?

July 15, 2011

As it becomes increasingly likely that Greece is going to default on its government debt, the question for Americans is “how exposed is the US to Greece and the PIIGS in general?”  The most obvious exposure would be for those who actually hold Greek debt.  According to the BBC, the Greek government owes the US about $7.3 billion (about 1.5% of Greece’s total government debt), of which around $5.8 billion is held by Americans and private lenders.  Relatively speaking, this is small change for American banks, as the Economist recently stated that Bank of America alone has more than $150 billion in capital.  Of course, if the other PIIGS (Portugal, Ireland, Italy, Greece, and Spain) were to default, then the situation would become much more serious for European and American investors.

A second measure would be that the resulting economic collapse in a country that defaulted would weaken the country’s international investment.  While investment is notoriously difficult to gage, according to the US Bureau of Economic Analysis, total European assets in the US were worth about $8.6 trillion dollars and employed 3.6 million employees in 2008 (the most recent available data).  However the PIIGS accounted for only about 6.1% of these assets and Americans employed by European firms.  Not surprisingly, Greece and Portugal contribute such a small portion of total European investment that they are not even included among the top 15 European countries.  While exact foreign direct investment data for Indiana is also exact, it does not appear that the state has much exposure to investment from the PIIGS.  According to Duke Energy, no Greek or Portuguese firms have operations in Indiana, while Spain has one, Ireland three, and Italy 12.  Although Italy’s presence in Indiana appears small, its percentage of majority-owned affiliates in Indiana is above the national average in terms on people employed.

A much easier matrix of exposure to measure is American exports.  In general, the US does not conduct a large amount of trade with the PIIGS.  As figure 1 shows, while the US exported $33.8 billion to the PIIGS, this only accounts for 2.6% of the United State’s global exports, and even only 14% of American exports to the EU.   In addition, the amount of trade with individual PIIGS varies greatly.  While Italy bought $14.2 billion in 2010, making it America’s 18th largest trading partner, Greece imported a much smaller $1.1 billion, ranking it 83rd in the world.

Source: WISERTrade

The Midwest tends to generally follow the trend of the US (figure 2).  Exports to the UK, Germany, Netherlands, and France tend to account for between 65% and 77% of all European trade for the states the border Indiana.  However, Indiana is the one state in this region which has a relatively high exposure to the PIIGS.  In 2010, Indiana exported $1.79 billion to the five countries, which was equivalent to 6.2% of all Hoosier State exports and 23% of Indiana’s trade with the EU.

Source: WISETrade

As figure 3 shows, within the PIIGS, Spain is Indiana’s major trading partner, accounting for more than half of all exports to the five countries.  At the other end is Greece, which only imported $6.4 million in 2010, which is less than .02% of all exports from Indiana.  The other good news for Indiana is that its main export to this region is chemicals, which includes pharmaceuticals.  In fact, Indiana accounted for almost a quarter of all Spanish chemical imports from the US, and more than ten percent for both Italy and Ireland.  Since these countries will probably still have to buy pharmaceuticals even if their economies are not growing, Indiana’s exposure could be cushioned.  In fact, chemical exports from Indiana to Spain more than doubled between the first quarter of 2010 and 2011 and grew by 17% to Ireland.  However, in the case of Ireland, its imports from Indiana shrank by 12% between 2009 and 2010, so the continued crisis could still hurt Hoosier exports.

Source: WISERTrade

As a result, while there are plenty of reasons to fear that Greece defaulting will hurt the US economy in the broad, in many ways American exposure in limited when it comes to investment and trade in the US.  However, if the contagion were to spread to other European countries, such as Italy or Spain, there will be more exposure, but it could still harm places such as Indiana, which has a relatively large economic connection with the PIIGS.

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