Europe did fall into recession later than the U.S., and thus may recover later. Its export-driven factories are showing welcome signs of life. And very slow population growth means slower overall growth.  But the short-term outlook for Europe is distressingly bleak.

Debt-burdened Greece is not the problem. It’s a symptom. Wages and prices in Greece, Ireland, Italy, Portugal and Spain are too high to compete. The old solution was to devalue the currency, but sharing the euro makes that impossible. So wages and prices need to fall, as they are in Ireland.

If the ECB is to avoid Continental deflation, then falling prices in southern Europe must be matched with faster rising prices in stronger European countries to bring the euro-zone average close to the ECB target. But Germany won’t stand for that much inflation. So the risk is that monetary policy makers in Europe will be too tight fisted. And worries about government debt loads, and fixation on deficit targets set in a treaty that never contemplated a calamity like the one we just survived, block any substantial new fiscal stimulus to bolster demand.

Much of Europe, Germany especially, is proud of its exporting prowess, but every country can’t count on exports to employ the millions left jobless by the recession. Some country has to be a consumer. And it can’t be the U.S., which helped cause the crisis by borrowing and spending too much.

China is beginning to do its part: Consumer spending there last year grew faster than the overall economy for the first time in years. But Germans and some other European consumers aren’t spending readily. Perhaps aging Europeans fear government deficit-cutting will erode their pensions. Whatever the cause, European consumer caution—and governments’ inability or unwillingness to reverse it—is a brake on the global economy.

And then there are the banks. Japan’s escaped the worst of the financial crisis. U.S. banks are regaining their strength, if not yet their eagerness to lend. China’s banks are a ticking time bomb. And Europe’s—well, it’s hard to say, and that’s the problem. Investors and analysts keep whispering that European banks have yet to come clean and are sitting on undisclosed losses. Its biggest banks have smaller capital cushions than their U.S. counterparts. European bank lending to business is still shrinking.