Greece, Ireland, Portugal and Spain are already in downturns or fighting to escape them, as high unemployment and austerity measures bite. But in the last few weeks, Germany and France, the Continent’s powerhouses, have also started to falter, hurt as struggling banks tighten their lending and orders for business from the indebted countries of Europe ebb.
“The sovereign debt crisis is like a fungus on the economy,” said Jörg Krämer, the chief economist at Commerzbank, who last week joined the growing crowd of analysts who are now predicting that Europe is headed for a recession. “I thought it would be just a slowdown, as is not unusual after a recovery. But I have changed my mind.”
The euro zone economy has already slowed to essentially no growth. It could stay in a slump, many economists say, at least through next spring. If that happens, tax revenues are likely to fall and unemployment is expected to rise, making it even more difficult for Europe to deal with the sovereign debt crisis and protect its shaky banks.