The "Euro Crisis" and U.S. Construction

I’ve just returned from a week of meeting central bankers, business executives and think-tank economists in four European cities. I was part of a delegation of U.S. and Canadian members of the National Association for Business Economics, the professional organization for which I’ll serve as president for a year beginning in October. The trip had been planned months before, but the timing proved to be ideal. We met first with Spanish officials and the U.S. ambassador to Spain just two business days after the head of the European Central Bank (ECB), Mario Draghi, had promised “unlimited” support to euro-zone countries that requested financial aid and agreed to conditions that would assure their ability to repay it. (The euro zone comprises 17 countries that use the euro as their common currency—a subset of the 27 members of the European Union.) The Spanish and U.S. officials both characterized the announcement as having been crafted to help Spain specifically. Next, in Frankfurt, we met officials from the ECB, a German commercial bank, and the Deutsche Bundesbank, Germany’s equivalent to the Federal Reserve, on the day a German court ruled that Germany’s participation in the rescue plan was constitutional. The ECB officials viewed Draghi’s announcement as part of a broader package of monetary, fiscal and regulatory reforms that will enable the euro zone as a whole to grow faster and become more competitive.  The Germans were much more skeptical but insisted they did want the euro to survive—an outcome that would likely be impossible without the prospect of offering assistance to Spain and Italy, as well as Greece and Portugal. I also participated in an economic outlook conference in Stockholm and met with economists in Brussels at the headquarters of NATO and the European Union. Those meetings reinforced my impression that the euro now has a much better chance of surviving—and of helping Europe resume growing economically after another year or so of difficult adjustments—than had seemed likely a week earlier. The fate of the euro zone—and more broadly of European economies such as those of Sweden and Great Britain, which do not use the euro—has indirect but nevertheless important implications for U.S. construction. First, European consumers, businesses and visitors to the U.S. are important customers for many U.S. firms; thus, the level of European economic activity affects their demand for construction of plants, export facilities, hotels and other structures. Second, without some relief, Spanish and other European financial institutions cannot resume their prior role of funding public-private partnerships and other U.S. construction projects. Third, the ability of many U.S. banks and investors to provide financing for construction in the U.S. depends in part on the performance of their loans and investments in European government, banks and companies. The construction industry in the U.S. is in the midst of an uneven and painfully slow recovery from an unprecedented contraction. The brighter prospects for the euro should lessen one obstacle in the path of recovery.