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Europe's Growth Woes

In unsurprising economic news recently, the European Union announced that the eurozone's gross domestic product contracted in the second quarter. It wasn't a catastrophic report. Growth was off by 0.2% from the first quarter, and France and Germany managed to stay out of negative territory. But the fact that things could have been worse is cold comfort.

Jeremy Glaser 03.09.2012


In unsurprising economic news recently, the European Union announced that the eurozone's gross domestic product contracted in the second quarter. It wasn't a catastrophic report. Growth was off by 0.2% from the first quarter, and France and Germany managed to stay out of negative territory. But the fact that things could have been worse is cold comfort. 

Growth is and will remain one of the biggest challenges to Europe truly fixing its debt crisis. Unfortunately, growth will be one of the trickiest problems to solve. The crisis is shrinking growth, but growth is needed to truly solve the debt crisis. To break this cycle, Europe will need to stop kicking the can down the road and act decisively to stem the crisis.

Contributing Factors
Although it is hard to pinpoint one reason why Europe is slipping into a recession, the debt crisis is clearly a major contributor. Business confidence is clearly one area that is dragging down growth as businesses generally hate uncertainty. Before making a big investment in either capital or in new employees, they want to make sure that they have a reasonable view into the future. Recently in the United States, this has meant worries about what will happen to top marginal tax rates, what changes could be coming to the regulatory regime, or if Congress is going to fix the fiscal cliff. European businesses have it even worse. Managers can't even be certain what currency they will be using in a year. Add in the worries that the crisis could keep getting worse, and you have a recipe for retrenchment in the corporate sector.

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About Author

Jeremy Glaser  Jeremy Glaser is the Markets Editor for Morningstar.com.

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