(Reuters) – Failure by European leaders at their summit this week to fix the fatal flaw in the euro zone, its lack of political union, would risk tremendous market upheaval, a rupture of the common currency and global economic fallout.
The world economy already is slowing, leaving it increasingly vulnerable to shocks reverberating from Europe. China cut reserve requirements for banks last week for the first time in three years and its factory sector shrank to levels not seen since February 2009. Brazil also lowered rates for the third time since August.
Only the United States has enjoyed a steady stream of improving data. The unemployment level dropped to 8.6 percent in November, the lowest level in 2-1/2 years, factories expanded and retail spending accelerated, pointing to a slow and gradual pick-up in growth.
But Europe casts a pall over everything. So serious are the risks that it could disrupt three years of painful global economic recovery that politicians, central bankers and market strategists are starting to compare the danger of European leaders deadlocking to the collapse of Lehman Bros in September 2008.
That shock plunged the world into its deepest recession since the 1930s.
“Let us not hide it: Europe may be swept away by the crisis if it doesn’t get a grip, if it doesn’t change,” French President Nicolas Sarkozy said on Thursday.
Bank of England Governor Mervyn King warned of a “systemic crisis,” adding that “none of us really know” how the euro zone would survive if the crisis explodes into sovereign default.
“This is Lehmans, Take Two. Cubed,” said Kathleen Gaffney of Loomis Sayles, a part of Natixis Asset Management.
Read the rest HERE.
Surely the deadly wound is not healed yet, if it is the deadly wound. The 9th (Friday) will give us a better idea of what may happen. Markets soared this past week on the news of a Fed “bailout”, but this will only give liquidity to the banks and will not solve the debt problem.
2011 has been eventful. 2012 may see much worse. Hold on to your seats.
Please read Javier Solana’s interview on Bjorn’s site “I have passed to another stage”