Europe's government-debt crisis is no longer panicking financial markets. But it won't end until the region's economy starts growing strongly again.
And that will be a while.
The economy of the 17 countries that use the euro has shrunk for two straight quarters — a common definition of a recession — and analysts forecast little or no growth until 2014.
Without growth, there won't be enough tax revenue to help countries like Greece, Italy, Spain and Portugal narrow their deficits and slow the expansion of their debts. Their debt burdens as a percentage of economic output, a key measure of fiscal health, look worse by the day.
The eurozone's combined debts are equal to about 93 percent of the region's gross domestic product this year and that figure is forecast to rise to peak at 94.5 percent next year. In 2009, the eurozone's debt-to-GDP ratio was 80 percent. A ratio above 90 percent is generally considered high and can put pressure on governments' borrowing costs.
"The worrying thing about the projections is, the peak seems to keep moving," says Raoul Ruparel of the Open Europe think tank.
The panic in European financial markets has eased in recent months largely because of aggressive action by the European Central Bank. The ECB said on Sept. 6 that it was willing to buy unlimited amounts of government bonds issued by countries struggling to pay their debts. That pledge quickly lowered borrowing costs for Spain and Italy, which earlier in the year faced the same kind of financial pressure that forced Ireland, Greece and Spain to seek bailouts.
But stemming the crisis and heading off a default by one or more countries aren't the same as stimulating growth. The United States economy remains weak several years after actions by the Federal Reserve helped arrest its financial crisis.
Europe's economy is being held back for several reasons:
European governments are slowly trying to make their economies more competitive. But in a September survey on global competitiveness by the World Economic Forum, Greece, Portugal, Spain and Italy ranked low because of poor access to financing and rigid labor markets.
It requires 11 bureaucratic filings to start a business in Italy. Fellow euro member Slovenia requires two.
Eurostat data released Thursday showed that for the second straight quarter the eurozone economy contracted. Output shrank by 0.1 percent in the July-September quarter, compared with the previous quarter.
The European Union's executive commission forecasts the eurozone economy will shrink by 0.4 percent for all of 2012 and grow by just 0.1 percent in 2013.
Without growth, there's little chance of cutting into an 11.6 percent jobless rate, the highest since the euro was introduced in 1999. Unemployment tops 25 percent in Greece and Spain.
Even with a modest recovery in late 2013 and 2014, the eurozone economy will be smaller adjusted for inflation than it was in 2008, when the Great Recession reverberated around the world.
Marco Valli, chief European economist for Unicredit, has charted recoveries from five crises going back to the late 1970s. He forecasts that the eurozone economy will not recover to its 2008 level until the first six months of 2015.
"This is unusual, in that even during the major financial crisis of the past, we have never seen such a slow recovery from a financial crisis," he says.