Europe Signals Global Gloom - World Markets Fall as Continent's Debt Crisis Fuels Worries of Lengthy Slowdown

From The Wall Street Journal:

International financial markets tumbled as a darkening global economic outlook and deepening fissures in Europe over its debt crisis fueled fears the world economy could slip into a period of prolonged malaise.

Monday's rout is a sign investors increasingly worry that a mix of slow economic growth and high public debt will tip the global economy back into a recession.

"There is clearly a recognition that the debt crisis started in Europe, but the story is similar across the Western world," said Silvio Peruzzo, economist at Royal Bank of Scotland.

Though both the U.S. and Europe emerged from recession about two years ago, a recent string of economic data suggests the recovery is fading on both sides of the Atlantic. A report Friday that the U.S. posted no job growth in August was a watershed, Mr. Peruzzo said, "a turning point" showing that economic risks are turning negative.

Until recently, the global economy appeared on track for a solid, if unspectacular, recovery, led by emerging markets such as China, India and Brazil. As a top exporter of specialty machine tools, Germany in particular benefited from this growth, and so did the Netherlands and Austria, helping the euro bloc offset weakness in Greece and Ireland.

Now emerging markets, though still expanding, aren't growing fast enough to lift the entire global economy. U.S. consumers, burdened by unemployment and a continuing housing slump, are unlikely to generate a new consumption boom. That leaves the global economy without a potent growth engine.

Some investors are concerned that more-mature economies have entered a period of prolonged weakness related to heavy debts and aging populations.

For almost two years, the debt crisis was centered on small economies such as Greece, Portugal and Ireland that combine for only 6% of the euro bloc's GDP. When the debt crisis threatened Italy early last month, the dynamics changed. Despite economic and debt problems, Italy is an advanced economy that has long been a member of the club of wealthy countries.