EuroBy most indications, the U.S. economy is recovering fairly well for the time being. Initial unemployment claims have fallen to a level we haven't seen since 2008, holiday season retail sales are exceeding expectations, and corporate profits are surging higher.

But across the Pond in Europe, another story is unfolding that has the stock market worried -- and it should have your attention, too. That's because problems in Europe impact employment prospects, the price of goods, and even borrowing costs here at home.

Here are five things to keep an eye on next year.

1. Debt Worries and Sluggish-to-Negative Foreign GDP Growth

The biggest concern worldwide is the effect potential defaults and bailouts will have on Europe and the rest of the world. Greece, Portugal, Italy, and Ireland have all seen their borrowing costs rise because of high debt and deficits. Unless the eurozone can come to a broad solution quickly, those problems will spread in 2012.

Both the debt crises and the austerity measures that have been implemented in response to them have caused the economies of these countries to slow, with Greece and Portugal likely to show contraction for 2011. If the debt problems continue to spread, growth could slow more broadly and hurt Europe as a whole, causing a domino affect around the world. Slow growth in Europe may not seem like a big problem here, but it has an effect on banks, employers, and even consumers domestically.

2. A Slowdown in Domestic Lending

Banks like Goldman Sachs (GS), JPMorgan (JPM), and Citigroup (C) have worldwide operations and exposure to Europe's debt that could affect lending here at home. If significant losses begin to mount in their overseas business, that could mean less lending in the U.S. as these banks prepare for new capital rules.

If banks pull back on lending to save capital for losses overseas, we could see slower growth in the GDP and employment than if Europe weren't dealing with massive debt problems.

3. Uncertainty for U.S. Employers

Increased hiring isn't just about increased profits and trying to grow a business. It's about confidence that conditions in the future will be better than they are today.

The lingering questions outstanding in Europe create problems for companies in the U.S. The problem is that demand for so many products from industrial equipment to electronic gadgets is global in nature. If one of the established economies in Europe is under a cloud of uncertainty, why would you build more capacity and hire workers here (or anywhere else)?

Companies across the market have talked about uncertainty in Europe as something that will slow sales growth, and by extension, employment growth.

Of course, within this uncertainty also lies opportunity. Some companies are seeing the ability to buy assets sold by European banks for dirt cheap prices. JPMorgan, Google (GOOG), KKR (KKR) and others are scooping up these assets in hopes that they'll pay off in spades in the long run.

4. A Weak Euro

The euro has also taken a plunge in the last six months, which is a double-edged sword for people in the U.S. A weaker euro makes European-made goods cheaper for domestic consumers and vice versa, so it could reduce demand for U.S.-made products and hurt employment.

But if you're looking to take a trip to Spain or get a deal on a German-made car, now may be the time. Your money will go further than it has in recent years, especially if the declines continue.

5. Low Borrowing Costs

Finally, the drag Europe creates on economic growth and employment will also help keep borrowing costs low. The Federal Reserve looks at GDP growth, inflation, and employment as indicators that drive interest rate policy, and if the risks I've outlined above keep growth slow and employment down, interest rates are likely to remain low.

That's good for homeowners and new borrowers, which could help the housing market further stabilize in 2012.
Keep an eye across the pond

Europe has a greater effect on the U.S. than many people imagine, so keep an eye on how the eurozone handles its growing debt and nagging deficits. It could have an impact on your pocketbook in the year to come.

Motley Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool and check out his personal stock holdings. The Motley Fool owns shares of JPMorgan Chase, Citigroup, and Google. Motley Fool newsletter services have recommended buying shares of Google and Goldman Sachs.




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26 Comments

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dabrownman

You can't borrow and spend a trillion and half dollars more than you take in every year like the democrats have done since they took over congress in November 2006, without being dead broke real fast and then just plain dead when no one will loan you another dime and your great grand children are forced in poverty trying to pay off Obama's socialist debts. The people that vote for Obama pay little in income taxes, the funds used to pay off America's debts, so they don't care about those that do pay off the debt - the evil rich. Democrats hate the rich and love those that give them government freebies. Now you know who the real enemy is.

December 31 2011 at 7:54 PM Report abuse rate up rate down Reply
1 reply to dabrownman's comment
tjdwill90

"Now you know who the real enemy is." Yeah, we sure do. IT'S MORONS LIKE YOU!!!!

January 01 2012 at 8:48 PM Report abuse rate up rate down Reply
1 reply to tjdwill90's comment
savemycountry911

So you think we can borrow and keep throwing money away and be fine, tj? You are the moron.

January 02 2012 at 8:07 PM Report abuse +1 rate up rate down
Somebody

Even if Europe were fine, there are dangers out there. Stocks are a bubble, gold is a bubble, bonds are a bubble. Cash is the only place to be! Do not jump into the fire from the frying pan. Google for "Kondratieff Wave 2012" to understand the risks in this coming year. Gold is going to crash! Contrary to mainstream media, gold is not a safe heaven. But stocks are not any better? Why? Because economy is running on borrowed money, borrowed time. For many decades, people and countries and companies borrowed US dollars and they promised to pay back US dollars. Debt is the problem and debt is denominated in US dollars. What Bernanke prints is nothing compared to the total debt that is out there! This is why he prints trillions and you don't see inflation! Borrowers must find US dollars to pay debt, not gold, not stocks! Keep your dollars safe. It is going to be a deflationary crash!

December 31 2011 at 12:29 PM Report abuse rate up rate down Reply
thefacts22

I do not believe,we are "recovering",our problems are increasing,as our debt is becoming a burden,and no nation can succed by piling even more debt as oba is doing,if for any reason China decides to sell our treasury notes,it will be more than a crisis,our unemployment could be as high as 60%,in less than a month.We most pay back,and stop hiding behind social causes

December 31 2011 at 8:07 AM Report abuse rate up rate down Reply
rneigh9880

How is European Socializm working for you now? Mr. Obama

December 31 2011 at 6:56 AM Report abuse rate up rate down Reply
Swordfish

"Uncertainty for U.S. Employers"
Don't forget Obamacare, # one for uncertainty. Why hire when we will be raped for health insurance.

December 31 2011 at 6:53 AM Report abuse +1 rate up rate down Reply
1 reply to Swordfish's comment
tjdwill90

Where have you been?! We've been getting raped for health care for a long time, long before the "chosen one" was elected.

January 01 2012 at 8:50 PM Report abuse rate up rate down Reply
edwardandersons

Seems like we will be told as things worsen that we must have a new currency while will be for the whole world..This has been planned for a looonngg time and its finally coming into fruition. Obama wants the raise the debt limit again so they will print more money until the dollar is worth absolutely nothing if its not already. One world government one world currency eventually one world religion and it will not be catholic Im thinking luciferian but I could be wrong.

December 31 2011 at 6:20 AM Report abuse +1 rate up rate down Reply
edwardandersons

Why must we be a global econcomy ...Why can't we just become more centralized with our money in our country this way we don't fall into the trap of destruction which is going to happen if the euro collapses..I have a feeling this article is a way of preparing us for the inevitable.

December 31 2011 at 6:16 AM Report abuse rate up rate down Reply
bopaan

What do we all have in common? Massive debt and big government spending. Is anyone talking about downsizing government, cutting spending, balancing the budget, and reducing our debt? The Tea Party is one group but the estabilishment in Washington and this administration are doing nothing but continuing the massive spending.

December 31 2011 at 6:05 AM Report abuse +1 rate up rate down Reply
yurday6

Vote Ron Paul and get rid of the Fed, this will definitely help the economy.

December 31 2011 at 2:53 AM Report abuse +1 rate up rate down Reply
laceandsilk

No liquidity, large write downs, slow growth, ECB is only playing Doorman !

Bankers are not very smart. Especially in Europe.

December 31 2011 at 2:32 AM Report abuse rate up rate down Reply