Stop Making Excuses.(effect of United States economy on Europe)(Brief Article)

It seems much longer, but only half a year ago Europe heaved a great collective sigh of relief. After years of sluggishness, the economy was growing and showing signs of a broad and sustained recovery. Most remarkably, all this was happening just as the United States, for a decade the envy of the world, slipped into post-bubble shock. There was even heady talk of "decoupling"--the prospect that Europe could thrive even if America did not.

Europe's triumphalism was premature. The euro zone is still expected to grow faster than the United States this year, for the first time since 1991. But scan the headlines of European newspapers, and it's obvious all is not well. They offer a sobering diet of higher unemployment, falling industrial production and consumers unwilling to part with their euros. Many Europeans now wonder whether the stronger growth of the past year was merely an aberration. The slowdown also asks the question whether Europe--especially the core countries of Germany, France and Italy--will ever achieve the economic dynamism displayed by the United States.

How galling to discover once again how vulnerable Europe still is to America's economic fortunes. Far from decoupling, our economies are far more interconnected than many wished to believe. As in the past, sinking U.S. demand for European products has taken its toll. The German export sector has been hit especially hard, since it also has to absorb many indirect effects of the U.S. slowdown. For example: emerging-market countries, seeing their exports to the United States plunge, have cut their purchases of German machine tools. And things could easily get worse. If the overvalued dollar falls against the euro, as seems likely, European businesses would lose much of the exchange-rate advantages they currently enjoy. And as their U.S. profits decline, European companies tend to cut costs across the board- -spreading the pain to Europe.

The lesson is plain. Sadly, the old adage--"When the United States sneezes, Europe catches a cold"--still holds true. So how should Europe respond? The first rule is to refrain from falsely assigning blame. The second is to take an honest accounting of our shortcomings.

First of all, let us not blame the European Central Bank for the current malaise. The ECB has so far done a good job under its chief, Wim Duisenberg. I expect it to cut interest rates soon, as the U.S. Federal Reserve has done half a dozen times this year--and as the Bank of ...