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Romney and His European Straw Dog

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President Obama's strategy to let the Europeans take the lead in confronting Gaddafi, a plan strongly criticized by Governor Romney, was brilliant and successful. The strategy was based on the question any experienced business leader or investor would ask: who has the most skin in the game?

In the Euro crisis, which Angel Merkel describes as Europe's most difficult hour since World War II, America definitely has a substantial amount of skin in the game. Yet strangely, Governor Romney is now campaigning on a blatantly and simplistically anti-European platform. For the Romney campaign, Europe has taken over from China as the punching boy that represents the foreign other. In reality, to say or suggest that Europe has nothing to do with the American economy or American job growth is to live in pre-globalized fantasy land.

The European Union is the United States' largest trading partner, with $240 billion of U.S. goods per year going to Europe as of 2010. By comparison, the United States in 2010 exported approximately $92 billion of products to China. The trans-Atlantic economy, the trade-linked economy of the European Union and the United States, is the largest bilateral economic relationship in the world. In terms of services, as well, the European Union is the number-one export market for the United States.

However, the trade figures don't even demonstrate fully the hundreds of thousands of U.S. jobs that are European-Union-dependent, whether it is the thousands of people working in European banks on Wall Street; in the pharmaceutical companies in New Jersey; in the BMW factory in Spartanburg, S.C., with its 2010 investment of $750 million, which made it the largest car factory in the United States by number of employees; for Siemens, with its 60,000 employees; or for Volkswagen, which, after investing over $1 billion, completed in May a plant in Tennessee that will produce 150,000 cars per year. In fact, 70 percent of job-creating foreign investment in the United States comes from Europe.

If one draws back the curtain further, beyond jobs, there is the issue of trade and finance. Aside from the fact that a large percentage of U.S. commodity exports are done via increasingly difficult-to-obtain letters of credit that are supported by European banks, U.S. banks possibly are sitting on a pyramid of undisclosed so-called "balanced risk" on debt issued by European Union countries. Exposure by six major American banks to credit default swaps (CDS) on Italian debt alone, for example, may be as high as $200 billion. Overall, U.S. banks may hold two thirds of the total euro-debt, CDS outstanding.

The euro crisis went into remission during the Christmas season, but it is soon to come back in full force. In March Greece faces a redemption cliff: if the €130 billion promised to it by the Troika as per the July 21 bailout is not delivered by then, it is game over -- first for Greece, which will default; then for the European Central Bank, which will be forced to write down holdings of Greek bonds, in effect wiping out its equity and credibility; and lastly, for the eurozone, which will see a core member leaving (in)voluntarily. And to make the circle complete and more frightening, the European Union is China's largest trading partner. If China slows down economically (which is currently happening), there will be significant ramifications.

The euro crisis is more important to the day-to-day, immediate future of the United States than are the Russian and Egyptian elections or the hegemony of China. The European Union's economy and the economy of the United States are explicitly interlinked. And if Europe is caught in an economic vice, so will the United States.

American banks understand how linked the European economy is to that of the United States; the New York Stock exchange certainly understands it, as does the Fed. But for whatever reason, Governor Romney, who should know better, prefers to use the euro crisis as a campaign vehicle to appeal to the most xenophobic part of the electorate. The problem, of course -- and it is a problem Romney will have to deal with on many issues -- is this: if he is elected, how will he be able to lead on the European issue after he has continually miseducated his electorate?