by Calculated Risk on 12/19/2011 03:47:00 PM

From the NY Times: E.C.B. Warns of Dangers Ahead for Euro Zone Economy

The European Central Bank warned Monday of a perilous year ahead as the sovereign debt crisis collides with slower economic growth and a dearth of market financing for banks.
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By some measures, the stresses on the European financial system are approaching or even exceeding levels last seen after the bankruptcy of Lehman Brothers in September 2008.
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A teleconference among E.U. finance ministers ended Monday with an agreement by euro zone nations to contribute around €150 billion, or $195 billion, through the I.M.F. European leaders had committed to contribute “up to €200 billion” at a summit in Brussels on Dec. 9.

From the Financial Times: ECB warns of global contagion risks

The comments hinted at ECB concern over politicians’ failure to bring the crisis under control, and at the danger of countries’ fiscal austerity plans being derailed by domestic politics.
excerpt with permission

This is very depressing. Europe is probably already in a recession, and the ECB and other European policymakers still think that fiscal deficits are the cause of the problem. What Europe needs is growth and re-balancing - and some fiscal adjustments. The ECB is also concerned that austerity will be "derailed by domestic politics". That should not be a surprise. The results of austerity alone - a deeper recession - will not survive the ballot booth.