Europe Steers Into a Zone of Uncertainty

Spain | Teachers in Madrid this week protested against proposed budget cuts in public education.
PARIS — With markets still volatile, and politicians only marginally closer to a solution of the euro’s troubles than they were two years ago, the future for the euro zone remains uncertain at best.
Roberto Monaldo/LaPresse, via Associated Press
Italy | Protesters angry over austerity measures scuffled with security officers this week in Rome.
Economists and financial analysts point to a series of land mines that lie ahead.
Growth is slowing, even in Germany, where exports are down and imports are stagnant. A team of experts stalked out of Greece last week to force Athens to live up to its debt-cutting promises as its bills continue to mount. The Italian government is applying fiscal Band-Aids to its deficit instead of surgery, while there is new budgetary pressure on Rome and Madrid, considered too big to bail out.
On Thursday, the Organization for Economic Cooperation and Development provided only the latest gloomy assessment of the prospects for a new recession and a European banking crisis. “The sovereign debt crisis in the euro area could intensify again,” the group said, urging the recapitalization of some European banks and better financial management in the 17-nation euro zone.
And the German finance minister, Wolfgang Schäuble, scolded Athens, warning that European aid would be provided only “if Greece actually does what it agreed to do.”
“The situation is extremely grave,” said Julian Callow, chief European economist for Barclays Capital. “Despite a sharp slowdown in economic activity, especially on the export side, you still have to push governments with large deficits to cut them to levels that are sustainable. That’s the key challenge, and the economic environment is much less favorable now for fiscal consolidation in the euro zone. And the Greek situation is like a ticking bomb.”