ATHENS — Recession has taken hold in parts of Europe, and the euro zone’s stubborn crisis risks a worldwide shock. Growth is slowing in major developing nations, and the U.S. economy may be faltering.
The economies and government debt of Greece, Spain and Italy compared.
European financial crisis has ripple effect on U.S. firms
The eerie emptiness at a Madrid Apple store is an indicator of the growing severity of the impact of Europe’s crisis on U.S. companies.
Draghi: Central bank poised to help save euro
Bank head Draghi said institution ready to intervene, but analysts took the lack of immediate action to indicate a standoff between Germany and other ECB countries.
IMF’s Lagarde: Euro crisis, U.S. fiscal cliff require ‘crisis management’
Europe, she stressed, isn’t the only weak spot in the global economy.
When world leaders take stock at a summit next week in Mexico, they’ll face the discomforting fact that four years of crisis-fighting, trillions of dollars in government stimulus spending and a massive effort from the world’s central banks have failed to produce the “strong, sustainable and balanced” world economy they are striving to build.
Is it time to open the cash spigot again?
“That would be highly due,” said George Pagoulatos, an economics professor who has watched this battered Mediterranean country cut wages in hopes of making its exports more competitive — only to find its major trading partners facing problems of their own. “There is no global demand and no demand in the euro zone,” a situation that leaves Greece with a worsening recession and no clear path to renewed growth.
Investors may be banking on policy action. On Tuesday, U.S. markets gained on speculation of a coming stimulus measure from the Federal Reserve after next week’s Fed policy meeting and after the European Central Bank endorsed a plan to guarantee bank deposits, Bloomberg reported.
Charles Evans, president of the Federal Reserve Bank of Chicago, told Bloomberg TV that he would support a variety of measures to accelerate hiring, especially more stimulus. “I’ve been in favor of pretty much any accommodative policy I’ve heard about,” Evans said in the interview. The non-voting Fed official echoed remarks made last week by three voting members of the Fed board, who expressed support for more central bank action if the U.S. economy continues to weaken.
The slowdown in growth is acute in Greece, where a multi-year downturn, a financial and debt crisis and now a political stalemate have combined to potentially force Greece to drop the euro and unravel a currency union intended to be “irrevocable.”
But there is heightened concern that the global economy as a whole is running out of steam — that the massive amounts of fiscal stimulus and loose monetary policy used to battle the 2008 recession have failed to nurse the world through an era of shaky growth, stagnant wages and high unemployment.
The World Bank cut its forecast for world economic growth to 3 percent for 2013 on Tuesday, maintaining its 2.5 percent growth forecast for this year. The bank cited the European debt crisis as a threat to developing markets, saying that “should the situation in Europe deteriorate sharply no developing region would be spared.”
Major political efforts to quell Europe’s problems have come up short: Even after regional officials committed $125 billion to bolster Spain’s banks over the weekend, the country’s borrowing costs rose again on Tuesday — to their highest level since the country adopted the euro — amid speculation that the amount may not be enough or that the government may also need help. Interest rates on government bonds also jumped in Italy as that country’s prospects for economic growth dim alongside the euro zone’s.
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