From Desmond Lachman, the Wall Street Journal:  A European failure to contain its debt crisis would be a monumental electoral setback for Mr. Obama. This is not just because Mr. Obama’s governing and economic philosophies are closely associated with the European economic model. Nor is it simply because Europe is a major U.S. export market. Rather, it is because a European failure is bound to have huge ramifications for U.S. and global financial markets.

If there is any doubt on this score, all one need do is consider the U.S. financial system’s massive exposure to the European banks. In a recent survey, Fitch found that, as of the end of July, the U.S. money-market industry still had direct exposure to European banks of over a trillion dollars—or roughly 45% of money markets’ overall assets. The Bank for International Settlement reports that American banks have loan exposure to German and French banks of more than $1.2 trillion.

This overexposure to the European banking system should be keeping Mr. Obama awake at night. Because those European banks in turn are all too exposed to the $2 trillion sovereign-debt market for Greece, Ireland, Portugal and Spain, and they have yet to recognize the large loan losses that they are bound to experience on their sovereign-debt holdings. . . .

A Continental debt crisis would not be good for the U.S. economy at the best of times. However, as the recent dismal U.S. jobs numbers underline, these are hardly the best of times for America. The prospect that an already stalling U.S. economy is now to be weaned off the monetary and fiscal steroids to which it has become accustomed over the past two years does not bode well, and an economic shock from Europe is the last thing that the U.S. economy or Mr. Obama now needs.

The 2012 elections will focus on one issue: The economy. Whether or not Mr. Obama has any control over the European factors that are putting the American economy at risk, voters may punish him for them anyway.

Mr. Lachman is a resident fellow at the American Enterprise Institute.  (photo: Getty)

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