European Commission report: Europe's headed for a new recession

As Greece and Italy continued struggling with leadership crises, the report offered a pointed analysis of the depth of the economic dilemma Europe faces and the potential cost to the world economy. The region’s problems have become self-reinforcing — with weak government finances, weak banks, and weak private demand all feeding off of one another, and a weak political response that’s so far been unable to stem the decline.

Unchecked, a slowdown or new recession in Europe would threaten the rest of the world through numerous channels. The flow of imports and exports with major trading partners such as the United States is already dropping. Investment in fast-growing eastern European economies could dry up, undercutting a part of the region that has been a top performer. China and other Asian countries would lose important customers. Bank failures could add to the shock in broad and unexpected ways…

The commission’s latest survey emphasized that there is no safe haven from the slowdown. Even the euro region’s large economic stalwarts, France and Germany, will see growth plummet to less than 1 percent in 2012, far slower than the commission forecast in the spring.