france credit downgrade

The EU’s executive said on Thursday that the euro zone is headed back into another recession in just about three years.  The executive said that euro zone was and is unable to shake its huge debt load, which is taking a considerable toll on the region’s economy.

Despite this rather unexciting news, the EU’s top economics official said that recent surveys only showed the possibility of a mild slowdown and didn’t think it was likely to have a full blown recession.  “Recent developments in survey data suggest that the expected slowdown will be rather mild and temporary,” said EU Economic and Monetary Affairs Commissioner Olli Rehn (Yahoo Finance).

The advisor continued to say that the recession was not set in stone.  It is possible to avoid a slowdown entirely but that would depend upon whether or not governments implement good policy.  However, on the current track the EU is on, the economic output is expected to decline 0.3% this year.  This is a revision from a previous forecast of a growth of 0.5% in 2012.  This new possibility of a recession comes after only a three year gap since the last one in 2009, when the EU’s economy contracted 4.3%.

Greece was awarded a second bailout only days ago, which government leaders are saying saved Greece from default.  However, the bailout will only save Greece if they spend it wisely and continue with their massive budget cuts.  There have been rumors and speculation that Greece will need a third bailout.

Greece is not the only problem.  We are seeing issues in a number of other EU members such as Portugal, Spain, France and Italy.  All four of these countries, like Greece, have an overwhelming debt load which is strangling economic growth.   Some analysts speculate that Portugal is in the second worse shape after Greece.  The country briefly made an appearance on the newsfeeds back in 2010-2011 but has since been shut out as the focus has turned to Greece.

The EU is walking the line as of late.  Their recovery has made very little to no progress and debt is destroying any glimmers of a recovery.  The EU can still avoid a recession however, it is viewed as unlikely.  There are just too many problems to handle at this time for them not to go into a small recession.  Keep an eye on how US equities respond to the situation in Europe.