European crisis putting heat on a cooling global economy

Given their track record in recent months, it did not come as a surprise that European leaders remained at an impasse over solutions to the fiscal crisis. The failure to reach consensus on a path forward makes for easy punchlines, but also for dim prospects for emerging from the recessionary shadows.

James Nixon, an economist with Société Générale in London, told the New York Times that political stagnation was “extracting a very high price in terms of the economy, as well as feeding back into the problems of the banking sector. It’s just making this whole problem bigger.”

How much bigger the problem can get is hard to pinpoint in exact terms because there would also be indirect effects of a worsening situation.

“Europe in 2010 accounted for 25 percent of world trade, according to Deutsche Bank. Europe also is the biggest trading partner for China and the United States. Loss of this market would ripple worldwide and slow global growth,” reports Reuters.

According to many analysts, the crisis is reaching a point of no return. Thomas Cooley, economics professor at the New York University Stern School of Business, tells CNBC that the combination of crises – debt, banking and political – is building into a perfect storm that will have global impact.

“Those are the three crises that are occurring simultaneously. Anything that undermines confidence in the financial system is bad, not just for the European financial system but the U.S. financial system as well,” he notes.

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