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A dark cloud has settled over the world's financial markets, as growing numbers of people are concluding the debt crisis in Europe could hammer global growth — and even bring back recession barely a year after a patchy recovery took hold.
Government officials — whose job it is to boost confidence — downplay that risk, but many economists are warning that the much-feared — "double-dip" recession could be starting in Europe.
It would be the next ugly chapter in the global financial and economic turmoil that began three years ago. And now as then, what is striking is the inter-connectedness of everything — how near-default in Greece and weeks of dithering in Germany have affected commodities like oil and gold and, with demand and confidence waning, have bludgeoned stock markets around the world in a way that rattles ordinary people saving for retirement from Korea to California.
In 2007, the bad debt connected to repackaged subprime mortgages started undermining banks and hedge funds, and by early 2008 confidence in the system was slipping fast.
This time it is the exposure of banks everywhere to sovereign debt — the IOUs of governments — whose value has been falling for months.
The sheer size of the European economy is a factor, said Mauro F. Guillen, director of the Lauder Institute at The Wharton School in Pennsylvania. "If European demand goes down, global growth will slow down," he said.
"A European economy that lags is not necessarily enough to put the world economy back into recession. But a European economy that cannot stabilize its currency and capital markets certainly will push the global economy back into the red." Nicholas Colas, ConvergEx Group chief market strategist, told The Associated Press. "A double dip is a possibility."