Euro-area growth falls fast

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Final quarter GDP in the eurozone fell by 1.5% in the final quarter, the first contraction since records started being kept in the 1990s.   If our subprime market is the cause of this mess, how come they're suffering more than we are?

Well, for starters, it's not accurate to say that our subprime market is the simple cause of this.  Banks in most of the developed world were participating in the credit bubble, though what they invested in varied.  If it wasn't their own subprime bonds, it was ours, or emerging market debt, or some other species of unexpectedly risky asset.

The other problem Europe has is that their major economies, especially Germany's, have historically been heavily dependent on exports.  The biggest source of robust domestic demand growth has been the United States consumer, and that turned out to be illusory.  Unfortunately, Europe's relatively paltry stimulus efforts seem to indicate that they still, somehow, believe that the United States consumer can pull them out of it, which is insane considering how overleveraged we are.  Unless they can overcome the need for our consumer spending, they'll continue to suffer longer and harer than we do.

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Megan McArdle is a former writer and editor at The Atlantic.

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