When the U.S. financial markets opened markedly lower Wednesday morning, President Barack Obama’s opponents blamed it on Wall Street’s lack of confidence in his ability to clean up Washington’s fiscal mess.
Actually, the cause is more long term and worrisome: Europe.
Our economic reports – such as the monthly employment update released Nov. 2, with its 7.9 percent jobless rate – tend to show steady, if painfully slow, progress toward recovery.
By contrast, the European Union, our greatest trading partner, has been generating a steady stream of gloomy economic news. It was probably not Obama’s re-election – which already had been “baked into” European financial thinking – but European Central Bank President Mario Draghi’s observation that the slow-to-zero growth of the EU-wide economy might spread to Germany, Europe’s largest and most robust economy.
The EU scaled back its forecasts for the 27-member union’s GDP growth from 1.3 percent to an anemic 0.4 percent in 2013. For the 17 nations that use the euro, it predicted a near-moribund 0.1 percent.
And when this year is over, the EU fears its economy will have actually contracted by about 0.3 percent. Another quarter like that and the economic union will officially be in recession.
Nor is the outlook for employment much better. The unemployment rate is at a record 11.6 percent across the eurozone and 10.6 percent in the EU as a whole. The jobless rate is expected to peak at 12 percent in 2013, a long time for Europe’s unemployed young people to wait for a job.
Greece is in its fifth year of recession. The zero growth rate predicted in spring now looks like a contraction of 6 percent this year and 4.2 percent in 2013. And for Greece’s population, grown restive over austerity measures, there is no end in sight.
Indeed, without the excitement over the U.S. presidential election’s outcome, the news from Europe might have had an even bigger impact on U.S. markets.