With European GDP falling flat, is the Global Recovery in Jeopardy?

Has the Eurozone experiment evolved into a collective, economic debacle? Private sector growth has stagnated across Europe with job creation stalling, rapid deflation taking hold, mounting member debt, and reduced manufacturing output.

While the 28 members of the European Union operate in a unique, political and economic partnership, the 18 member monetary union embrace a common currency. With the goal of shared prosperity, the Eurozone must also confront the reality of shared hardship as Greece, Italy, Ireland, Spain, and Portugal are all swimming in foreign debt. The Greek economy continues to contract, the Italian economy is shrinking, Ireland is dealing with a new credit crisis, millions remain jobless in Spain, and Portugal is in the midst of a banking disaster.

New worries for the zone include France now at zero growth, Italy slipping back into recession, and Germany, the great guarantor of the Euro, recording an economic contraction in the second quarter of this year. Germany has been the driving force behind multiple banking rescues and bail-outs and accounts for the one fourth of the Eurozone’s total GDP. So when this economic titan stumbles, is it truly heard around the world?

Make no mistake about it, when European growth contracts, the US feels it. About 20% of our exports go to European manufacturers and consumers including everything from computers and chemicals … to airplanes and automobiles. US exports are a vital part of our own GDP growth and necessary to sustain our already inconsistent recovery. It’s important to America and the entire global community for the Eurozone to get its economic house in order. But with multiple countries involved, a host of differing economic woes, and a common currency … fixing things is no easy task.

The American solution to its own recession has been to print money … a lot of money. The Eurozone, however, has embraced a different policy, one of belt-tightening and deficit reduction that critics now claim has made growth impossible. This has put pressure on the European Central Bank to consider undertaking an American-style QE program to help boost business investment and stimulate the markets. Similar monetary policies have been undertaken by both The Bank of England and The Bank of Japan.

There’s no doubt that an increase in money supply leads to a surge in economic activity but will it create jobs and long-term economic growth for the many interdependent nations that comprise the Eurozone? Or, will it send their shared currency into a tail spin? The US dollar, the British pound, and the Japanese yen have all had their share of stimulus-woes and struggled with unsteady recoveries and deep currency depreciation … and yet pressure continues to mount on the ECB to join in on the easy money fray.

With the European recovery now deemed unresponsive, many analysts expect crisp, new euros to start rolling off the presses as early as next year. If the ECB does embrace a cheap money policy, look for expanding asset bubbles, new threats of European-style inflation, rising US interest rates, and a rush to risk assets like gold and silver that offer a global store of value and universal diversification and protection.