New York Times
October 10, 2011
It is difficult now to see how Europe and the euro area in particular could avoid at least two consecutive quarters of negative growth in 2012 (possibly starting in the fourth quarter of this year) and hence a “double dip.” The more troubling fact is that this is likely to be followed by a relatively long period of slow growth as most European economies continue to draw down their public and private-sector debt, which is likely to fuel unemployment.
There are a number of concerning developments. First and foremost, the sovereign debt crisis is dragging on — and slowly reaching the core of the euro area. This will force national governments to retrench further, sometimes making long-overdue structural reforms but also sometimes cutting blindly into their expenditures and social safety nets.
Second, the banking crisis is also deepening as very little has been done over the last three years to address it. It is now crystallising and forcing European banks to raise capital rapidly and to shrink their balance sheets, setting in motion a credit crisis that will not only affect European businesses and consumers but that is also likely to weigh on international trade and global infrastructure financing, in which European banks are very involved.
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