Seven reasons why Europe matters to U.S. markets

While Italian elections rocked global financial markets this week, there are more problems in Europe than Italy. All of them matter to U.S. investors because what happens in Europe won't stay in Europe.

No matter how hard we try to ignore it, Europe is a sinking ship.

On numerous occasions, economist Nouriel Roubini has referred to the euro zone as a "slow motion train wreck." Many investors might believe that Europe's problems are Europe's problems and not ours, but, unfortunately, nothing could be further from the truth.

Here's why what happens in Europe matters to U.S. investors:

1. In 2011, the United States exported $319 billion in goods to the 17-nation euro zone, which makes it our biggest trading partner. American exports to the broader 27-nation European Union totaled $463 billion during that year.

2. Europe represents more than 10% of S&P 500 revenue, and 20% of the Gross World Product comes from the euro zone. According to the IMF, the 27-nation European Union had a GDP of over �12.629 trillion (US$17.578 trillion) in 2011, making it the world's largest economy.

3. The euro zone has been in recession since the second quarter of 2012, when its economy contracted by 0.2%. On Feb. 14, Eurostat reported that the euro-zone recession deepened as fourth-quarter GDP fell by 0.6% in the 17-nation euro area (EA 17) and by 0.5% in the broader 27-nation European Union (EU 27). A Feb. 25 report from the European Commission forecasts the euro-zone economy will contract by 0.3% in 2013.

4. The "core" of Europe is shrinking as France and Britain are in recession, and even Germany, the euro zone's strongest economy, is starting to sink with a 0.4% contraction during the fourth quarter.

5. Italy was the big newsmaker this week, and the election outcome casts a longer shadow over the future of the country and Europe as a whole. Italy is important because of its gigantic debt load, second only to Greece in terms of high debt-to-GDP ratio. At just over $2 trillion American dollars, Italy has the third largest amount of outstanding government debt in the world and the largest amount of debt in Europe.

U.S. banks have "moderate exposure" to Italy, according to Fed Chairman Bernanke's testimony to Congress on Tuesday, and the prospect of a hung Parliament puts the country's austerity programs in jeopardy. Bond yields are spiking, a sovereign default is a more likely possibility, and this is bad news for countries like Germany which owns over $40 billion worth of Italian bonds. A look at iShares Italy ETF EWI �tells us all we need to know about Italy: