So Much For A Mighty Europe.(Giving Globally)(Business)(influence of the United States economy on Europe's)

Byline: Stefan Theil

How far down will the financial crisis drag Europe's newly resurgent economy? That's the trillion-euro question in continental capitals last week. It's a bitter moment: after decades of stagnation, Europe was suddenly looking more economically powerful than America.

Growing at a stellar 3.1 percent in 2006, European Union countries soared past America in job creation. Unemployment across the 25-member bloc has plummeted to 6.9 percent, a level last seen a generation ago. The numbers have given Europe a new confidence about its place in a globalizing world. Now, as subprime-related troubles reverberate throughout Europe, the moment seems to be over before it's begun. The British government had to intervene to stop a bank run last week. Housing markets in the United Kingdom, Spain and Ireland are headed downward, and more of Germany's poorly monitored Landesbanken may need government bailouts thanks to their hoarding of risky U.S. assets.

The crisis comes at a moment when Europe's economy has already had to deal with a whole barrage of shocks: a surging euro (which makes European goods more expensive for foreigners), sharp hikes in food and energy prices, the European Central Bank's doubling of its benchmark interest rate and the biggest tax hike in German history. Together, these shocks have dragged eurozone economies back down; the Bank of America estimates 2 percent growth in the second half of 2007.

Still, the downturn may be only skin deep; European ...