MILAN, Italy It took a few months, but the economic woes touched off by soaring oil prices and the subprime-mortgage crisis in the United States are finally engulfing Europe.
While each country has written its own recipe for what appears to be a looming slowdown, they all have one key ingredient in common: "Inflation, inflation, inflation," said economist Gilles Moec of the Bank of America in London.
Pinched by higher prices, consumers aren't spending and polls find confidence levels are falling in most of Europe's big economies.
Marie-Charlotte Robin, 23, a communications student who drives every day through Paris for her summer internship, says she has to devote more and more of her budget to gasoline. Recently, she has spent about 70 euros ($110) a week at the pump.
"I don't even fill up my whole tank anymore because the price makes me sick to my stomach," Robin said, while taking a lunch break on a park bench on a street just off the Champs-Elysee.
Inflation could well be the bugbear that defines what might otherwise have been a normal, cyclical slowdown after two or three years of strong growth in Europe. Unusually, it is food and oil prices that have risen without driving up core inflation. But many worry it is just a matter of time before prices for other goods begin rising, as well.
"Overall, inflation is at 4 percent, twice the target of the European Central Bank," said Marco Annunziata, chief economist of UniCredit Markets and Investment Banking in London.
"If you look at core inflation if you ignore the prices of food and energy it is less than 2 percent. That shows the prices of everything else except food and energy are quite stable. The question is: How long can it last?"
A stronger euro had buffered Europeans somewhat from the early rise in oil prices, since crude is priced in dollars, and for a while, their economies rolled on. But soaring energy costs are starting to bite, and there is growing pessimism about the impact here from the economic troubles in the United States a top export market.
Kabir Siyar, who owns a mobile-phone and electronics business, said business has slowed at his store on Hauptwache square, one of the busiest shopping areas in Frankfurt, Germany.
"For the past year or year-and-a-half, for things that cost as little as five euros ($7.90), people are asking if they can have it for three euros ($4.75) instead. You never used to see haggling," he said. "People used to just hand over the money. Now, they're trying to get a better price."
The dynamics of slowdown vary greatly from country to country, creating a complex scenario that is exacerbating worries about how bad it will get and making it harder for the European Central Bank to conduct its one-size-fits-all interest rate policy. Stressing the need to fight inflation, the bank raised rates earlier this month, despite fears that might weigh on growth.
Spain, Ireland and Britain suffer from burst housing bubbles like the one in the United States. Germany's export motor, running strongly for several years, is suddenly sputtering. Italy, Europe's perennial underperformer, limps along, burdened by chronic structural problems.
Denmark is already in a technical recession two consecutive quarters of decreasing economic output. According to many economists, the list of suspects for second-quarter contraction is growing: Spain, Italy and Ireland and possibly France and even Germany.
Gross domestic product in the 15 countries that use the euro currency which excludes Britain grew 2.2 percent on an annual basis in the first three months, according to Eurostat. But that may be the last bit of good news for a while.
"The big news is that the euro zone itself may contract in the second quarter," said Edward Hughes, an economist in Barcelona, Spain.
The crisis has already claimed a casualty in Spain, with the collapse of the big construction company Matinsa-Fadesa under $7.9 billion in debt. The firm suffered the effects of higher interest rates and tighter lending conditions by banks spooked by the U.S. subprime troubles, even though not directly affected.
Bad news keeps rolling out of Germany, Europe's biggest economy. Exports fell 3.2 percent in May, the biggest drop in more than three years. The private research firm ZEW says its index of German investor confidence is the lowest since it began in 1991. Growth appears to have slowed dramatically in the second quarter to just 0.2 percent, according to the DIW think tank.
Still, many economists believe Germany may escape a big hit, following healthy 1.5 percent first quarter growth.
That may not be enough to improve the picture for Europe overall. Bank of America forecasts stagnation in the euro zone for the rest of the year.
At Barclays Capital, Frankfurt-based economist Thorsten Polleit said, "We haven't penciled in a doomsday scenario in terms of economic growth."
Barclays forecasts a slight 0.1 percent contraction for the euro zone in the second quarter, followed by 0.3 percent growth in each of the third and fourth quarters, Polleit said. For the year, Barclays growth forecast is 1.6 percent in 2008 and 2 percent in 2009.
"Inflation is a societal evil. It starts biting into consumer spending," Polleit said.
While that's the picture in Europe and North America, Polleit said pricing power has shifted to countries that export commodities.
"It is always the same story. We are happy with rising prices of goods we already own," Polleit said. "We hate rising prices for goods we would like to buy. ... We don't appreciate it if others are getting better off, while we are getting less well off."