Europe Debt Crisis Poses Threat To US Recovery, Says Federal Reserve's James Bullard

Greece, which proved the trigger point for the 
beginning of Europe's debt turmoil a year ago, is again at the centre of divisions on the continent over how to cut the country's debt burden. With the ratio of Greece's debt to gross domestic product still rising, and the government struggling to deliver on reforms, some European finance ministers have signalled that the economy's debt may need restructuring. The European Central Bank, however, has warned that such a move  which could involve the maturity of some Greek debt being extended  would stop it accepting the bonds as collateral for loans to Greek's banks. Christian Noyer, a top official at the ECB, said on Tuesday that a restruturing is a horror scenario".
For policy makers on this side of the Atlantic, renewed evidence of stress in Europe will conjure up memories of 12 months ago. The turmoil in financial markets leading up to Greece's bail-out from the European Union and the International Monetary Fund last May is considered by some to have contributed to a sharp slowing in US growth in the second quarter of 2010. "I am concerned about the situation in Europe, James Bullard, the president of the regional branch of the Fed in St Louis, said after a speech in Missouri on Monday night. "Prolonged financial market turmoil could be a negative for the US. The strains within Europe come at a delicate moment for the US, where most economists still expect a gradual recovery in the jobs market to help offset the financial squeeze many Americans face from higher food and petrol prices.