by Calculated Risk on 12/04/2006 06:31:00 PM

From the Financial Times: Europe bets on weathering a US downturn

... can that tale of two diverging economies be true? Most economists had the same thoughts back in 2001 when, in the midst of a US recession, the chancelleries and ministries of Europe were confident that the old continent could go it alone. ... But within a few years, such hopes had evaporated. Europe’s main economies had slowed to a crawl as the collapse of the dotcom boom and terrorism hit the global economy. Will it be different this time? Is Europe’s economy really “decoupling” from that of the US?
...
Mervyn King, governor of the Bank of England, ...said ... “In 2000, when we also had this debate, the original shock was a worldwide slowdown in the IT sector. What we’re seeing now in the US is not a consequence of a worldwide slowdown – world growth has been and continues to be pretty strong – rather we’re seeing a slowdown in the US housing market.”

But won't there be a housing bust in Europe too?

Other reasons for optimism mentioned in the article include increased European internal demand, the reduced dependence of Europe on trade with the US, and the "health and potential strength of European labour markets".

For more international issues, see Brad Setser: Good reading on the dollar’s recent move