Investors Fear Europe’s Woes May Extend Global Slump

The New York Times - Just as America’s recession begins to ebb, trouble is brewing in Europe that may prolong a downturn on the Continent and ricochet through the global economy as it struggles toward a recovery.

A rout in stock markets that began in Europe spread to Wall Street on Thursday and around the globe to Asia on Friday, amid fears that Europe may be the world’s next financial flashpoint. Pressure has been mounting across the Atlantic as Greece, Portugal and a handful of struggling countries that use the euro scramble to pay off mountains of debt accumulated from years of profligate spending.

The Dow Jones industrial average slid 2.61 percent, or 268.37 points, to 10,002.18 Thursday, after briefly falling below 10,000 for the first time since November, as American investors grew more uncertain about Europe’s economy.

Stock markets across Europe slumped as much as 6 percent, and worries that the troubles might push even big European nations like Spain into a financial crisis drove the euro to $1.37, a seven-month low against the dollar.

Markets in Europe slipped further on Friday, after a sharp sell-off in Asia, amid continued worries about government debt in several European countries and about the state of the U.S. labor market.

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http://www.nytimes.com/2010/02/06/business/global/08euro.html?ref=europe

Once a Boon, Euro Now Burdens Some Nations

The New York Times - ATHENS — “The Italians, the Spaniards, the Greeks, we all have been living in happy land, spending what we did not have,” said George Economou, a Greek shipping magnate, contemplating his country’s economic troubles and others’ from his spacious boardroom. “It was a fantasy world.”

For some of the countries on the periphery of the 16-member euro currency zone — Greece, Ireland, Italy, Portugal and Spain — this debt-fired dream of endless consumption has turned into the rudest of nightmares, raising the risk that a euro country may be forced to declare bankruptcy or abandon the currency.

The prospect, however unlikely, is a humbling one. The adoption of the euro just a decade ago was meant to pull Europe together economically and politically, ending the sometimes furious battles over who could devalue their currency the fastest and beggar their neighbor.

For the Continent, the currency signaled the potential to one day rival the United States. For its poorer countries, winning admission to the euro zone was a point of pride, showing that they had tamed their budget deficits and set their financial houses in order.

Now, in the middle of the worst economic downturn since the euro’s birth, a new view is emerging — especially as the creditworthiness of Greece, Spain and Portugal, one after the other, has been downgraded. The view is that the balm of euro membership allowed these countries to gloss over serious economic problems that have now roared to the fore.http://www.nytimes.com/2009/01/24/business/worldbusiness/24euro.html?partner=permalink&exprod=permalink

Suddenly, Europe Looks Pretty Smart

The New York Times - Paris — Is Europe no longer an economic museum?

In recent years, as Wall Street boomed, Americans often dismissed Europe as a place for languorous meals and vacations, not economic innovation.

London remained a financial hub, of course, but it was often treated dismissively — as a flashy aberration pumped up by petrodollars from Russia and the Gulf, an exception to the otherwise somnolent Continent.

That kind of thinking is now under challenge, because during the last 10 days Europeans have proved more nimble than Americans at getting to the root of the global financial crisis, whatever they may have lacked as innovators.

After initially dithering, Europe’s leaders came up with a financial bailout plan that has now set the pace for Washington, not the other way around, as had been customary for decades.

That was clear when the Treasury Department decided to depart from its own initial bailout plan — the one approved by Congress earlier this month — and invest up to $250 billion directly in the nation’s banks. The nuts and bolts of that approach had been laid out days earlier by European leaders as they tried to save their own financial system.

And that outcome left Gordon Brown, the British prime minister, and Nicolas Sarkozy, the French president, in something of a commanding position to claim the title of wise men. They are now speaking of creating a Bretton Woods agreement for the 21st century, while the leaders of the country that fathered the postwar financial system worked out at Bretton Woods, N.H., prefer to stay away from such big-picture talk.

In London, where Britain’s willingness to follow the United States into Iraq five years ago still evokes outrage, officials have been especially quick to point out they didn’t follow Washington’s lead this time.

“There’s no doubt that it was a British plan that was copied by the U.S.,” said Leon Brittan, who served as Home Secretary under Margaret Thatcher and was a top official at the European Commission. “It shows that the American conception of Europe as an economic basket case is outmoded and wrong.”

“Europe showed the capacity to respond to a crisis more quickly than the U.S.,” he added. “The U.S. went through agonies to come up with a plan.”http://www.nytimes.com/2008/10/19/weekinreview/19schwartz.html?partner=permalink&exprod=permalink