How the U.S. and Europe drag each other down - by Ezra Klein

The financial turmoil in Europe certainly isn’t helping America’s own recovery effort. But the reverse is true as well: The stagnant U.S. economy is also putting a damper on Europe’s ability to get back on its feet. It’s a negative feedback loop that has exacerbated the downturn on both continents. And the danger is that this cycle could become self-reinforcing, not only dragging down those economies but also triggering a longer-term downturn in the global economy — one fed by multiple crises that don’t have any single solution.

The immediate cause of the European debt crisis is internal, the result of fundamental fiscal problems in Greece, Italy, Portugal and Spain that have had a ripple effect across the euro zone. But the U.S. recession has been yet another drag on the European economy, which could make its own financial recovery all the more challenging. The doubts about whether U.S. consumer spending will recover have weighed particularly heavily on Europe, one of the biggest U.S. trading partners, as its own growth has stagnated as well. More than half the companies in the Standard & Poor’s 500-stock index are overseas, for instance, with the majority of them in Europe. “It creates yet another level of uncertainty in a situation in Europe that’s already very, very fragile,” says Tu Packard, senior economist at Moody’s Analytics.

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