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Europe debt crisis dragging world economies down

New data show the Eurozone woes intensifying a global slowdown, with signs that even Germany, China and other pillars of growth are in trouble. Customers browse through the goods at a discount store in Athens. Analysts in the U.S. fear that if Greece abandons the euro, the U.S. economy could suffer as well, as Europe is a major market for U.S. exports. (Kostas Tsironis/Bloomberg / May 24, 2012)

WASHINGTON — The Eurozone debt crisis is intensifying a global slowdown, with new signs that even powerhouse Germany may be faltering, adding to worries about China and other major pillars of economic growth.

Analysts worry that economies and markets now are so intertwined that the emerging slowdown will further weaken economic confidence in many parts of the world, which is already fragile.

While heavy indebtedness and belt-tightening are blamed for the shrinking growth in Europe, economists say the biggest developing countries are suffering from the effects of policies imposed by central bankers intent on thwarting inflation. Meanwhile, the United States, the world's largest economy, is trudging along at a mediocre pace.

"You've got a combination of troubles in Europe and a deceleration in the emerging world," said Nariman Behravesh, chief economist at IHS Global Insight, an economic research firm. The result, he said, is that global growth will slow sharply this year from 2011. And trade growth will be half of last year's pace.

The biggest single threat to the world is Europe's troubles, which seem to be worsening by the day. On Thursday a key measure of Germany's business sentiment and activity fell for the first time in 10 months. Rather than pulling up the prospects for the rest of the region, the continent's largest and most resilient economy is being dragged down by the escalating problems in Greece and the increasing possibility that Athens will leave the Eurozone.

A separate index of manufacturing and services in the Eurozone, the 17-nation bloc that shares the euro currency, dropped last month to its lowest level in nearly three years, according to data released Thursday. And Britain, which is not in the Eurozone but is Europe's third-largest economy, said it had contracted more than previously believed in the first quarter, joining Spain, Italy, Portugal and a growing number in Europe that have slipped back into recession.

The gloomy data were released just hours after European Union leaders ended an informal summit with no concrete measures for boosting the region's economy. Germany and France remain divided on how best to tackle the Eurozone's more than 2-year-old sovereign debt crisis.

Analysts in the U.S. fear that if Greece abandons the euro, the U.S. economy could suffer as well. Europe is a major market for U.S. exports.

"Importantly, U.S. banks and investors will take a hit from a further declining euro and reduced European bank lending activity in the United States and in countries that buy American products," said Peter Morici, a professor at the University of Maryland and a former chief economist at the U.S. International Trade Commission.