At the beginning of this year, there were forecasts that Europe could pick up the economic slack created by the U.S. downturn and Japan's continuing economic problems. The 12-nation common currency, the euro, was enjoying a rise against the dollar after falling steadily in the first year of its existence. European companies were seeking acquisitions in the United States and Asia. Governments were introducing tax and structural reforms to sharpen competitiveness. After 3.4 percent growth in 2000, optimists saw 2001 as the year of Europe.

Six months later, the picture looks very different. Growth is falling across the continent. Last Thursday, the European Central Bank forecast that the euro zone's economy would expand by between 2.2 and 2.8 percent this year and by 2.1 to 3 percent in 2002. Meanwhile, inflation is rising, boosted by currency factors and high food and oil prices. This year's inflation now seems likely to be in the 2.3-2.7 percent range.

Unemployment remains high in some major European economies despite years of government programs to reduce it. Structural reforms that could upset voters are being put on the back burner as center-left governments in Germany and France face national elections next year. The euro, meanwhile, has slumped once more, restoring the dollar to its all-powerful position on world currency markets.