Italy Adopts $30 Billion of Cuts in EU Deficit Push (Update3) - Bloomberg.com

A faithful reader of this blog called me yesterday to josh me a little bit. My last few posts, he said, were unnecessarily bearish.

And perhaps he is right. The news from corporate America remains strong, and there are even signs of more hiring going on. Even the housing market is doing better - the Boston Globe reported this morning that housing sales in April were +46% higher than a year ago, for example.

And yet there remain gathering clouds that concern me, mostly emanating from Europe.

Most of the financial types I socialize with are quick to say, "Well, those European countries running big deficits are just going to have to live within their means." What never seems to be discussed is the economic and human costs these tightening measures will entail.

Italy announced yesterday that it would try to reduce its fiscal deficits through a combination of public employee wage freezes and a "crackdown" on tax evasion (in a country that has taken tax evasion to a new level). This follows similar moves in Portugal, Spain, and Ireland:

Italy Adopts $30 Billion of Cuts in EU Deficit Push (Update3) - Bloomberg.com

However, these moves could eventually come back to hurt the US, as this morning's New York Times noted:

Europe Pain May Impede U.S. Upturn

Here's an excerpt:

There is no shortage of storm clouds to bolster a gloomier take. Japan and Europe are perched near the edge of deflation. And as one European leader after another takes a vow of austerity amid talk of layoffs and deep spending cuts, American manufacturers — which have led the domestic recovery — could find their goods piling up in warehouses and on docks.

“We were counting on a weak dollar and a strong European economy; instead we got a strong dollar and a weak Europe — that is clearly not good for our economy,” said Joseph E. Stiglitz, former chief economist of the World Bank and a professor of economics at Columbia University. “It certainly increases our likelihood of a double-dip recession.”

http://www.nytimes.com/2010/05/26/business/economy/26recession.html?hpw

So while I think that the recent stock market swoon may have left the market oversold, and due for a near-term rally, I am also wary that Europe's bad news may be something to monitor carefully.