If the maxim is true that when one economic powerhouse sneezes, another catches a cold, then the United States may be feeling a bit under the weather now.

Greece, Spain, and Italy may be thousands of miles away, but in today’s increasingly globalized world, the sovereign debt crisis in those countries could be preventing a more robust economic recovery in the United States.

“The U.S. doesn’t have the choice to insulate itself from what’s happening in the European economy,” says U.S. Chamber Senior Vice President for International Affairs Myron Brilliant. “Our two economies are so intertwined and the relationship is so broad and deep that we can’t isolate ourselves from Europe’s economic problems.”

Europe is the United States’ largest commercial partner, with a relationship valued at more than $5 trillion. Together the two economies constitute nearly half of world GDP and 40% of world trade. U.S. companies employ millions of Europeans, and European companies here do the same. 

That level of integration—and the 17-nation eurozone’s struggle to overhaul its institutions and streamline its decision making to restore investors’ confidence—has many U.S. businesses feeling uneasy.  

One of them is Bay Cast Inc, a foundry in Bay Cities, Michigan. The 100-employee company makes one of the many thousands of parts that go into natural gas turbine engines made by Siemens Energy. Sales to Siemens, a German-headquartered company, comprise 15% of Bay Cast’s business, says Max Holman, president and general manager. “I feel very comfortable with whom they are as a company and how strong they are, but certainly anything in Europe can affect us because the value of the euro affects how much they want to place overseas.

“The fear isn’t that they will buy less necessarily, but that they’ll produce it in Europe as opposed to producing it in the U.S.,” Holman continues. “If it’s expensive to do business here because of the exchange rate, they’re going to want to build it someplace else where they get the best value for the euro.”

Holman is not alone in his concerns. In a June poll of FreeEnterprise.com readers, 65% said that they are very concerned about the impact of the EU debt crisis on the U.S. economy; another 31% are somewhat concerned.

“For some American businesses, [the European debt crisis] is going to cost them a significant export market,” says Fred Kempe, president and CEO of the Atlantic Council, a nonpartisan institution devoted to promoting transatlantic cooperation and international security. “It could cause the dollar to rise compared with the euro. In general, it could influence the nervousness of bankers and those extending credit.”

Kempe is not upbeat about the immediate prospects in Europe. “In the short term, I’m pretty concerned because when you have a currency union with such a gap in global competitiveness between the northern countries and the southern countries, the only way the currency union works is if the northern countries are continually transferring to the southern countries.” He adds, “But domestically and politically, that’s harder to sell. How do you sell to the honest German taxpayer and the German who is getting retirement at age 65 or 68 that he should bail out a Greek who is retiring at age 55 and not paying his taxes? So I think we’re far from the end of this crisis.”

While the challenges are stiff, Brilliant says that Europe is on the right path by pursuing a package of fiscally neutral pro-growth measures. “The EU and the eurozone have a twin challenge—to rein in deficits and debt while adopting policies that unleash new sources of growth in the European economy. Austerity is necessary, but it is not sufficient to lift the indebted eurozone countries out of the crisis.”

The Essential Partnership

With both Europe and the United States facing a shared challenge of generating growth at a time of fiscal retrenchment, the solution to both lagging economies may rest in working together to build a stronger relationship.

“It’s simple—we are stronger together than we are alone. Sticking together as an alliance for prosperity and security is the only way to keep the transatlantic community strong and relevant in the dynamic decades ahead,” according to Chamber President and CEO Tom Donohue.

The Chamber and others say that with a transatlantic agreement on the elimination of tariffs, the liberalization of services trade, an investment accord, compatible regulatory regimes, and expansion of bilateral government procurement commitments, the United States and the EU can help each other overcome the economic crisis. 

The benefits of such a U.S.-EU economic and trade pact would be far-reaching. One study has shown that eliminating tariffs would—by itself—add $180 billion in extra economic growth in the United States and the EU over five years. “Clearly, the benefits of a transatlantic deal could dwarf all other trade agreements we have signed in terms of the added competitiveness for our companies and the increase in prosperity for our citizens,” says Brilliant.

Adds Kempe, “Whether or not the eurozone stays together in its current form, whether or not Greece stays in the euro, whether or not Europe solves all of its problems right away, an economic and trade pact makes a lot of sense. It’s in our competitive interest to do it.”

A U.S.-EU economic and trade pact also has the endorsement of many global businesses, including General Electric, which has 90,000 employees in Europe. While nearly 48% of GE’s sales occur in the United States, European sales account for the second largest portion of revenues at 20%, or $29 billion.

“GE is a strong proponent of trade liberalization as a driver of economic growth,” says Karan Bhatia, GE senior counsel. “The idea of a U.S.-EU FTA—combining the world’s two largest economies—is particularly appealing. Although U.S. and EU tariffs on most manufactured items that GE produces are generally modest, their elimination would undoubtedly spur economic growth on both sides of the Atlantic.”

Even more important, according to Bhatia, the elimination of nontariff barriers and the establishment of common transatlantic processes (and, ideally, mutual recognition) in standards setting would prove to be a real spur to growth in the United States, Europe, and third-country markets. 

Brilliant also proposes that the United States and the EU need to pursue new and creative ways to make their regulatory regimes compatible so that companies only have to comply with one set of standards. “Regulatory barriers are a key obstacle to a number of companies—a sign that still more companies that could be involved in transatlantic trade are on the sidelines as they see a regulatory wall in their way.” Brilliant suggests that the United States and the EU open their services sectors, including industries such as insurance and banking. 

Read more about the benefits of the U.S.-EU partnership at http://www.uschamber.com/international/europe/transatlantic-economic-integration