Editorial: Europe stares recession in the face

In the recent recession, Europe worried about the United States. Would it plunge into full-scale depression and pull the other Western nations in after it? In the end, it did not, thanks in part to President Barack Obama, Treasury secretary Tim Geithner and Fed chairman Ben Bernanke, who get far more credit in Europe for their financial acumen than they do here.

Now it's the U.S.'s turn to worry about a Europe that is looking at the very real possibility of another recession. Europe's economists are as bright as any in the world but they are dealing with a terribly unwieldy mechanism for solving joint economic problems -- the 27 nation European Union, the 17 nations in the eurozone, a constrained EU central bank, economic decisions that must be made by consensus and non-member Britain on the sidelines, always quick to criticize the players in the arena.

The EU's problems are severe and a seemingly nonstop round of meetings among heads of government and their finance ministers have failed to come up with a solution.

The crisis has been postponed by France's and Germany's willingness to intervene aggressively, but France is nearing the end of its ability to bail out its fellow Euro members and the German public is nearing the end of its patience and maybe their ability to pay as well. The growth rate of Europe's healthiest economy is projected to shrink from 3 percent to 1 percent next year.

It's not out of the realm of possibility that the ongoing crisis could cost German Chancellor Angela Merkel and French President Nicolas Sarkozy their jobs.

The interim plan is to redouble the usual solutions: pump more money into the major banks, boost the EU's bailout fund by some $600 billion and convince Greece to restructure it debt.

This last is not at all popular among holders of Greek bonds since it would require them to take a 60 percent haircut in the value of the debt they hold.

Also teetering is Italy, Europe's third largest economy, which has a public debt of around $2.8 trillion, equivalent to 120 percent of GDP, a situation that isn't likely to be much improved by a projected growth rate of 0.6 percent for this year.

Italian Prime Minister Silvio Berlusconi may have survived one scare too many and he too may find himself out of office.

In Britain Prime Minister David Cameron handily beat back, 483 to 111, a vote to put continuing membership in the EU to a referendum, which the government might well lose. Cameron won with help from opposition Labour and the Liberal Democrats, but he suffered 81 defections among his own Tories.

"You don't need to be paranoid to be terrified," one person familiar with the ongoing talks told the Financial Times.

That's why it's comforting to read the verdict of Daily Telegraph business editor Ambrose Evans-Pritchard:

"Europe's (European Monetary Union) soap opera has shown why it matters that America is a genuine nation, forged by shared language and the ancestral chords of memory over two centuries, with institutions that ultimately work and a real central bank to back-stop the system.

"The 21st Century may be American after all, just like the last."

That may be overly optimistic, especially the part about the institutions, but it's still nice to hear.