It isn’t shocking that a continent thousands of miles away is struggling with debt and the rest of the world is worrying. If we haven’t learned a bit about worldwide fiscal connectivity and how it impacts each of us by now, we’ll probably never learn.
Europe’s sovereign debt crisis has some similarities to America’s 2008 crisis that launched the current recession. Back then, some of us were still convinced that our burst bubble would be just a blip in the economy, with just some credit tightening and a tough but manageable uptick in foreclosures. As the hill of bad paper became a mountain, though, we learned this was no ordinary downturn.
But as bad as things got here, they got worse in Europe. There, too, easy credit in the middle part of the past decade spurred high-risk lending. Burst housing bubbles spurred defaults, business went sour, tax receipts waned and hefty public pension and salary obligations pushed some governments toward bankruptcy.
Now, with the European Union wobbly, France’s Nicolas Sarkozy and Germany’s Angela Merkel are pushing for countries to give up their sovereign fiscal policy rights in order to answer to a central authority when it comes to handling debts.
Here’s a look at how Europe’s inability to pay its bills might affect Las Vegas:
• Decreased tourism. This is the most clear and present danger. As disposable income wanes, some of the roughly 330,000 people who come to Las Vegas from France and Germany each year, and the roughly 385,000 who come from the U.K., may stay home.
• Slowdown in exports. We could also suffer from a dent in U.S. exports to Europe, says UNLV economist Stephen Miller. Roughly $412 billion in U.S. exports went to the European Union in 2010. Exports have been a bright spot for the U.S. economy, growing more than 16.6 percent in 2010. Weakened demand for U.S. products as a result of a crippled European consumer is not something the country needs right now.
• Employment spillover. It’s no secret that the U.S. private sector has been hoarding cash since the start of the recession. In the third quarter of 2011, U.S. non-financial businesses were holding $2.12 trillion in liquid assets, or cash, according to the Federal Reserve, the highest figure ever. A Reuters report referred to the hoarding as a “cash buffer” against the European crisis. The more companies hoard cash, fewer jobs are created, and the fewer the number of jobs, the fewer tourists and so on.
• Credit challenges. Another concern is that if European nations default on their bonds, it could spill over into higher interest rates in the U.S. A default by one of Europe’s sick economies, such as Italy or Greece, wouldn’t have this impact, says Nasser Daneshvary, head of the Lied Institute of Real Estate Studies at UNLV, but a German or French default could. At that point, buying a home, car and other things becomes more expensive right here in America. For Las Vegas, a city that desperately needs buyers to snatch up distressed real estate, a spike in interest rates could be devastating.
• Decreased direct investment. Paul Bell, president of the Greater Las Vegas Association of Realtors, says the National Association of Realtors estimates $3 trillion in foreign investment in American real estate over the next five years. He says Las Vegas is considered a Top 20 market for foreign investors. Locally, he has seen increases in Asian and European interest in Las Vegas property. Many Europeans working at Strip shows have been encouraging their families to buy homes here in the past few years, he says. So far, he has not seen a significant drop in this trend.
• Marketing changes. Las Vegas has made fair-weather friendship an art. After 9/11, the fear of flying meant marketing to California drivers. It worked. Visitation grew, and as air-travel confidence revived, marketing budgets were then shifted back toward the rest of the nation and the world. International travel has been a focus for growth the past few years, approaching 20 percent of total annual Las Vegas visitation. The Las Vegas Convention and Visitor Authority’s goal is 30 percent by the end of this decade. But economic collapse in Europe or Asia could force Las Vegas marketers to shift strategies again. The casino industry is known for its nimbleness in finding the markets of the moment; international economic crisis could prove to be one of its toughest challenges yet.