Eye on the Market I June 25.2012 J.P.Morgan Topics: The upcoming EU summit, the Fed's efforts to jumpstart growth, how hard a US budget compromise is going to be, and a look at one rare aspect of the 2012 US Presidential election (Another) EU summit. I think everyone understands by now why Europe matters. In a recent note, we showed how one third of all OECD banks are in some kind of distress, most of them being European (June 4). As for US corporate profits, Europe matters a lot as well. Around 15% of S&P 500 revenues and 23% of S&P industrial revenues come from Europe2. For technology companies, these numbers are even greater: roughly 30%, with some subsectors even higher (PWC estimates that 36% of global software sales are in Europe). The summit is likely to focus on bank recapitalization, easier repayment timetables for Greece, bank deposit guarantees and an alleged "roadmap" for EU integration. The challenge for Germany, as we have discussed before, is that it cannot afford a blank check given debt levels already over 80% of GDP. However, if policymakers don't do something about growth in the Periphery (bailouts primarily designed to aid German and French banks don't counts), the North-South divide will continue to widen, putting pressure on the ECB and EU taxpayers. Sometimes there are no easy answers. Italy, Spain, Greece and Portugal are contracting at a 2%-5% annualized pace, and unemployment in Spain and Greece is sky-rocketing (VI chart). These levels are notable from an historical perspective. As shown in the 2n' chart, 20%+ unemployment was the level at which National Socialists in Germany began to take seats away from liberal democratic parties during the 1930's. If the jobs picture does not improve, other EU policy decisions may not matter much: the Wyman/Berger loss estimates for Spanish banks would almost certainly be too low, lower GDP growth would continue to result in lower tax collections, fringe parties may gain further suppor