Even if the credit boom ends and financial markets can no longer count on a cheap, plentiful supply of funding, Europe's economy looks set to continue performing strongly. The view of most economists is that consumption, investment and production should not suffer unduly if a renewed sense of fear in markets pushes credit costs upwards.
Despite renewed trader fears of contagion from the crisis at the high-risk end of the US home loans market, these economists do not predict a genuine credit crunch and are keeping disaster scenarios in their bottom drawer.
Instead, they largely agree with European Central Bank chief Jean-Claude Trichet's argument that an upward re-pricing of risk was expected and even desirable after years of perhaps overly carefree financial market investments.
"We share the ECB's implied upbeat view of fundamentals for the next year or so, and we do not believe that credit markets hold the power to derail this otherwise orderly slowdown," US investment bank Goldman Sachs said on Friday.
There was news this week of Europe's first notable casualty from exposure to the US sub-prime lending market. German banks had to pool 3.5 billion euros in rescue money to cover potential losses at one of their peers, IKB.
The message from officials such as Trichet and from the IMF is one of reassurance. Trichet has flagged another interest rate rise in the eurozone for September and the IMF had just raised its European and global growth forecasts.
The International Monetary Fund now expects global GDP to rise 5.2 percent this year and next. It raised its forecast for this year from 4.9 percent only a week ago, just when market jitters over US sub-prime troubles were reaching fever pitch.
The latest Reuters quarterly poll conducted between July 9 and 16 found economists predicting growth in the 13-nation eurozone in 2007 would match the six-year high of 2.7 percent achieved last year.
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Jacques Cailloux, chief Europe economist at RBS bank, says business confidence, rather than consumer confidence, is where Europe would be vulnerable if the situation deteriorated badly.
The eurozone's economy, he argues, chiefly owes its rebound of last year and continued strong performance this year to private sector business investment, although such investment is only a quarter of the volume of consumer spending.
Cailloux estimates it would take a 10 percent drop in share prices before companies, cash-rich from years of rising profit, would might start postponing investment plans or hiring.
"Consumer confidence is even less responsive," he added.
How economists rate the risk of economic damage in Europe also depends on whether they believe Europe will catch a cold if the United States sneezes. Goldman Sachs says the rise of Asia and return of Europe has taken much of the meaning out of that old adage.
But UniCredit chief economist Marco Annunziata begs to differ, saying Europe would be particularly vulnerable to a slowdown in US consumer demand, because Europe's own consumer demand has only recently started playing a role as a driver of growth.
Annunziata said his worst fear is the emergence of further big casualties from exposure to US sub-prime lending, a few big banks going under and a vicious circle beginning which causes a lasting spike in credit costs and a tumble in confidence both sides of the Atlantic. "How high is the risk? I would say about 20-30 percent," he says.
Rating agency Moody's said on Friday it believed the threat from the sub-prime crisis would be manageable for large banks in Europe but it said it was worried about smaller ones. "Smaller players that have significant direct or indirect exposures to the sub-prime sector may find that their liquidity, risk management capabilities or financial resources are less adequate to absorb any valuation adjustments and corresponding liquidity requirements," it said in a report.
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