California might not feel full effects of European contagion

The best thing to remember about what could happen in Europe - and what effect it would have on the U.S. - is that nobody knows anything (thank you Sam Goldwyn). Still, it is worth noting that some states appear more vulnerable than others. California, according to a Milken Institute analysis, is one of the less vulnerable ones. Only 16 percent of the state's exports go to the European Union countries, which is less than 1.5 percent of California's gross domestic product. However....

California's export growth has been largely tied to growth in emerging countries. And because the BRICs acquire a large portion of their financing with European banks, California's growth is indirectly exposed and is likely to experience a slowdown in exports. So while exports on a national level aren't as dependent on the EU as they once were, its indirect impacts, namely experienced through a further slowdown in emerging nations, like China could present more challenges for U.S. states. Perhaps now is the best time for our congressional leaders to rethink some of our export strategies.

Other states are more exposed, says the Milken report. BMW and Michelin. for example, have extensive operations in South Carolina. Utah a big gold mining state and the EU is a large importer of its gold and silver. Here's a look at the states most vulnerable.

The Milken people estimate that a 10 percent decline in U.S. exports to the EU would result in a 2 percent decline in total exports. Translated, growth would only stumble by 0.2 percent. In other words, not that big a deal. What's mostly left out of this analysis, however, is the effect any European implosion would have on the U.S. financial system. On that score, prospects are less certain because the world banking system is so interconnected. This helps explain why Moody's turned bearish with its downgrades, even though bank officials maintain that they have become more insulated to any contagion out of Europe. Like I said, nobody knows anything.