As European leaders traveled to Brussels to kick off the European Summit on Friday (Dec. 9), markets and governments in Europe and beyond waited for signs of real progress in the ongoing debt and currency crisis. The 27 countries of the European Union are effectively the largest single economy in the world, so early fallout from the summit meetings could range from exuberant market rallies if a workable solution to the crisis is found to bank runs in several countries and a subsequent global slide into severe recession or depression.

For Seattle, King County and Washington state, the near-term risks of a euro collapse are significant but manageable, according to government economists and budget directors.

Washington State chief economist Arun Raha puts the largest risk in the longer term, "The whole mess over there has cast a cloud of uncertainty on the global economy. The key is whether the sovereign debt problems can be kept from spreading to European banks.

"If it does indeed lead to a European banking crisis, then U.S. banks will be affected, and so will the U.S. and Washington economies."

Dwight Dively, King County director of performance, strategy and budget, says the county's risk in a euro failure is limited in the near term but echoes Raha about the larger impact, "The county has little direct financial exposure to these issues," according to Dively. "Our investments are almost entirely in U.S. Treasury and agency securities. We often buy these through investment banking institutions, but we don’t have any risks if those institutions fail.... the real problem with a Eurozone failure would be the effect on the global economy.

"Europe presumably would enter a fairly long, severe recession, which would in turn hurt U.S. exports. As a trade-dependent state (airplanes, software, agricultural products), this hurts Washington. Unemployment would likely go up and state and local revenues would likely go down."

There is some direct exposure for the City of Seattle, according to Hall Walker of the City Budget Office, but city finance managers have been working for months to minimize it. Walker adds, "Some of our cash pool is typically invested in asset backed commercial paper (ABCP) vehicles for short term investments. Many of the ABCP programs we invest in are sponsored by European banks.

"In the last few months our investment management team has been allowing many of these notes to mature and be reinvested in other securities, namely government enterprise notes (e.g. Fannie Mae and Freddie Mac), treasuries and cash. In the last few months the portion of our cash portfolio invested in ABCP has fallen from over 21 percent of the portfolio to around 10 percent today."

The value of that 10 percent of the fluctuating cash pool ranges from $60 to $140 million, and the notes are backed by collateral, according to city Finance Director Glen Lee.

Both Seattle and King County announced yesterday that each local government had received an upgrade in the outlook assigned to them by Moody's Investor's Services, one of the main rating agencies, based on the strength of the local economy and limited exposure to the agency's downgrade of the U.S. sovereign debt. Moody's had earlier changed it's outlook to "negative" last August.

Seattle's Walker sums up the general concerns about what may or may not happen with the euro crisis. "Beyond this, it really is difficult to gauge exactly what my may occur locally," notes Walker. "We have been bumping along in a very weak recovery recently in the US, so I think most of us would be wary of large shocks at this point."

Correction: An editor's note to an earlier version said Matt Fikse would be on KUOW 94.9FM on Friday. He appeared Thursday.