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Is the United States Headed Down Europe’s Financial Road?

Europe’s economy is contracting

The recent Greek debt deal produced a big collective sigh of relief, plus some cheers for that massive liquidity injection into Europe’s banking system.

It was time to grab a glass and offer a toast to the coming economic recovery of the European Union, right?

Alas, it turns out that Europe’s private sector economic activity is contracting faster than expected.

The latest Markit composite purchasing managers’ index fell to a three-month low. And the survey for that index was conducted in Germany and France, two of the eurozone’s bigger economies.

Markit’s chief economist told Marketwatch (3/22) “The euro-zone economy contracted at a faster rate in March, suggesting that the region has fallen back into recession…”

Citigroup’s chief economist told CNBC (3/22) that Europe’s financial problems have merely been delayed for another day. “We have really just paused for breath,” he said. “It [the long-term refinancing operation] really hasn’t solved the problem, and for Europe the worst is still to come.”

Our Financial Forecast has said for years that the bailouts and the European Union itself would come to grief, even as other observers were optimistic.

Case in point, this excerpt from the December 2006 Financial Forecast:

Much of what’s come together in Europe will come apart in coming years.

The crux of the forecast dates back to 1999, when the inclusionary force of the Great Bull Market was at its peak and The Wave Principle of Human Social Behavior argued that the post-World War II transformation toward a harmonious and borderless Europe had reached its limit:

“[The] European Union was consummated following 1,500 years of repeated conflict in the region…This multi-year pageant of apology, concession and agreement and the concurrent wonderful atmosphere of international peace and cooperation are consistent with my Elliott wave case that an uptrend of Grand Supercycle degree is ending.”

That year, euro-phoria hit peak pitch, as 11 European countries surrendered their currencies to adopt the new euro and a shared monetary authority, the European Central Bank. For the next eight years, the European Union focused on expansion. This trend was perfectly consistent with the positive social mood trend, which reached its extreme in 2007. As the long and winding global financial topping process completes its final upward surges, the pageant of concession and agreement has desperately focused not on expansion but on rescue and preservation.

…The current level of unpayable debt is too big to bail.

So we’re not surprised that Citigroup’s chief economist just said that “…for Europe the worst is still to come.”

And in the United States, the national debt has already climbed to $15.6 trillion; the federal government’s own projections forecast a rise to $25-trillion by 2022. Moreover, we also know that many states and municipalities today suffer major financial woes.

Is America headed down the same financial road as Europe? And what about the future of the European Union itself?


What the European Debt Crisis Could Mean for YOUR InvestmentsElliott Wave International has been anticipating and tracking the credit contagion across the European Union. Read this FREE report from EWI, The European Debt Crisis and Your Investments, with commentary and analysis from February 2010 through today, to gain a unique perspective on the European debt crisis and get ahead of what is yet to come.

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This article was syndicated by Elliott Wave International and was originally published under the headline Is the United States Headed Down Europe’s Financial Road?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

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