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Are Europe's Problems Your Problems?
 

Sure, Europe is important. But I don't think the region's economic issues are going to significantly impact small business owners in the states. Here's why.

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Say you're a baseball fan from Houston and your team has a 30% winning percentage and finds itself 35 games out of first place.  Well, you say to yourself, maybe that's not so bad--at least you're not a Mets fan.  Or let's suppose you've lost all your money and your house and every one in the world thinks you died in a nuclear explosion, but in reality you're still alive and hanging out with Selina Kyle in a Florence café.  Hey, that's not so bad either (particularly when Selina Kyle looks like Anne Hathaway).  And what if you find out you lost your job as host of a late night TV show on NBC but your pay-out is...oh, say, $44 million.  You'd probably agree that's not so so bad either.

And then there's Europe.  Maybe that's also not so bad.

According to the latest reports, it seems that many countries in the European zone are slipping into a recession.  The United Kingdom is already there.  Greece is in a fifth year of recession, has a national debt that's more than 150% of gross domestic product, and is struggling with 24% unemployment.  Spain may have won the Euro 2012 championship, but its banks are sitting on billions in toxic assets, and its government is also dealing with crippling unemployment.  I'm pretty sure Portugal's doing badly too, but I always confuse that country with Spain, so don't take my word for it.  Italy's runaway deficits and mounting debt is pushing up interest rates and putting more pressure on its banking system.  Germany, the region's largest economy, is suffering its own slowdown.  And France's new socialist government is struggling to grow its stagnant economy, while reigning in the voting public's insatiable demand for more entitlements and Jerry Lewis movies.

Many argue that Europe's problems are America's problems.  And to some extent there's logic in that argument.  Big American companies like FedEx are already facing lower shipping demands and are responding by cutting back on employees, trimming expenditures, and reducing growth plans.  Instability in Europe's banking system could very well affect many of our own financial institutions that are heavily invested in European counterparts.  Rising unemployment could cause political instability, a disruption in the flow of goods, and yet another reunion of the Spice Girls to distract the populace.  Yes, these are grave concerns.

I recognize that both the E.U. and the U.S. economies combined represent about half of the world's gross domestic product.  And that the U.S. has a huge investment in this geographic zone, much larger than anywhere else in the world.  But a little perspective is needed.  In round numbers, the population of the 17 country Eurozone is about 330 million people, or only about 5% of the entire world's population.  The combined gross domestic product of all European countries is approximately $13 trillion, which is about equivalent to the United States'--plus next year's college tuition bill for my three kids.  Europe accounts for 20% of our trade, but Canada, Mexico, and China account for far more; in fact Canada and Mexico together make up a third of our exports.

Of course Europe is important.  But, I wonder, as a small business owner here in the states, are Europe's problems really going to significantly affect me?

Not yet.  In fact, the U.S. has recently reported a gain in exports despite the problems in Europe.  Sure, economic activity out of that region is certainly slowing down and many countries there will likely go through even more painful restructuring.  But I think a full-blown collapse is unlikely.   Europeans love their food, cars, fashion, and terrible TV shows like "Glee" and "The Real Housewives."  In other words, there will always be markets for our goods and services there.  It's just that sometimes activity will be slower than other times.  And thank goodness the U.S. isn't too dependent on European customers.  Public companies have to disclose significant customers (more than 10% of total sales) in the footnotes of their financial statements.  Even though the Eurozone accounts for about 20% of the United States total "sales" (exports), we still do 80% of our business with other trading partners, whose growth is offsetting Europe's stagnation.

In addition, Europe's problems have made ours seem like child's play by comparison.  That helps explain why so much cash is still flowing into American markets despite our near zero-level interest rates, shaky economy, and election year political uncertainty.   Despite our obsession with guns, fatty foods, and Miley Cyrus, America continues to be the world's safe haven, at least for the world's money.  As a result, our government is, at least for now, able to fund its deficits by selling more bonds and the value of our stocks have increased by more than 70% since recession-level lows.  But beware fellow small business owners: smart managers know that nothing lasts forever.  And when our European friends eventually do get their act together (and they will) be ready for when money could flow out of this country, causing our own deficit-related issues that could impact our taxes and government spending plans.  But that's another topic for another day.

The problems in Europe have also helped our dollar get stronger as the Euro gets weaker.  For some small and large businesses this is a problem because it makes their goods more expensive to sell (although it doesn't yet seem to be hurting our exports).   But for other business owners this presents a big opportunity.  We can buy stuff cheaper, which may mean we can price our goods lower, and still maintain margins.  We can, where possible, hold our prices steady, and make even more money.  We have the ability to invest in distressed companies overseas that are hungry for cash.  We have more sway over our business relationships with our European partners.  And we may seem stronger in the eyes of our customers as compared to our worthy European competition.  With our new-found purchasing power we can even travel to London, like I did, and only pay $20 for a slice of pizza!

And though we hear of the potential struggle of some American multi-national companies, even some of those may benefit from the European slowdown.  Some 40% of McDonald's global sales come from Europe, and history has shown that when times are tough people eat more fast food.  It's cheaper and, c'mon, there's no comparison to a Big Mac.  More Europeans may shop at Walmart to save money and see more American movies to take their minds off of things.  They may turn to more in-home entertainment instead of taking their vacations on Lake Garda, which means more Apple iPhones, Dell computers, and Google searches.  For the thousands of small businesses who do business with American companies like these a European slowdown may actually be an unexpected boon.

Finally, the problems our overseas friends are facing offer many lessons to small business owners like me.  Make sure you're not too reliant on one significant customer.  Balance your budget.  Watch your overhead.  Control your costs.  Don't take on too much debt.  Invest wisely.  And push for your government to do the same.   As we get closer to our next presidential election we'll be asked to choose between two candidates who of course do not want to repeat the mistakes made in Europe.  They are each presenting their economic plans.  Which one is the best?  Pay attention!  If the riots in Greece and the tears in Spain aren't enough motivation, then we'll surely get what we deserve.  Hopefully we can learn and avoid these consequences.  And if we do, we'll have our friends and business colleagues in Europe to thank.

Last updated: Aug 22, 2012

GENE MARKS is a columnist, author, and small-business owner. He oversees the Marks Group, a 10-person technology consultancy to small and medium-size businesses. A certified public accountant, Marks has also worked in the entrepreneurial services arm of KPMG. He writes for The New York Times, Forbes, and The Huffington Post.
@genemarks




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