Is the West falling again?

Morgan Stanley has forecasted a negative growth for the eurozone in the current quarter with a dip of 0.5 per cent. Eurozone's official statistics agency Eurostat confirmed this week that the GDP of 17 EU nations (those using the euro) fell 0.3% in the last quarter of 2011, despite rising 0.7% in the full year. Warningly, in the last quarter, exports fell 0.4% quarter on quarter - the last time this happened was in the second quarter of 2009 when the EU was last in recession. In fact, from business investments to household spending to government expenditure, everything fell in this last quarter.

Clearly, the threat of double dip (or triple dip, if you considered that the double dip had already passed) is imminent with the EU commission candidly forecasting a renewed contraction of 0.3 per cent in 2012. Even Germany's growth is expected to fall by 0.6 per cent and France's by 0.4 per cent. In summary, Europe is in recession (again!). The financial pundits of Europe are even predicting Greece's exit from eurozone which would eventually trigger many other countries to exit - causing havoc for the European economy and even the death of euro as a global currency. One has to realize that the euro is currently the world's second largest held reserve currency (approximately 25% of global forex reserves are in euros, compared to around 61% in dollars; IMF data) and unless there is a joint consideration by the affected countries to not let the euro die, this could the tipping point that could send global reserve statuses into an unmanageable tumble. Even the prominent heads of European nations, who were so far projecting a bold face, have started to sound cynical. Sarkozy referred to this year as being 'full of risks'; the President of Italy, Giorgio Napolitano, has called for 'sacrifices' from common Italians; the Prime Minister of Greece, Lucas Papademos, termed the year as 'difficult'.

As of right now, even Brazil has promised funds to bail out the eurozone, revealing the global desperation in the situation. The worst that could happen now is an EU country formally collapsing. With a €1.9 trillion national debt (120% of GDP), Greece could well be the chosen one if the holders of Greek debt refuse to accept a proposed 'bond swap' (that forces them to waive off 70% of the debt).