Special Report: Global Financial Crisis

    BRUSSELS, Dec. 20 (Xinhua) -- Battered by the biggest global financial shock in 80 years, the economy of 15 European Union (EU) countries sharing the euro has plunged into its first-ever recession in 2008. But pessimism over the economic prospects still permeates the bloc.

    GOOD START SHORT-LIVED

    After garnering a remarkable growth in the past two years, the eurozone economy entered this year on a high note, despite the combined impacts of surging commodity prices and the U.S. subprime mortgage crisis.

    In the first quarter of 2008, the eurozone economy grew by 0.7 percent over the previous three months, faster than the 0.3 percent registered in the last quarter of 2007, which beat many economists' expectations.

    However, the good start soon proved to be short-lived.

    As global oil prices and the euro were both climbing to their record highs in terms of the U.S. dollar around the middle of this year, the eurozone came under unprecedented pressure from inflation and suffered fading competitiveness in exports.

    For the first time since the eurozone was born in 1999, the single currency club recorded an economic contraction in the second quarter, down by 0.2 percent against the first quarter.

    Worse came a few months later when the financial turmoil, which originated in the U.S. mortgage lending market last year, escalated into a full-fledged crisis and quickly traveled around the world, with tangible damage on confidence and subsequently on the real economy.

    FINANCIAL CRISIS ESCALATING

    Despite optimism manifested by EU leaders at their summit in June, the economic situation in the eurozone took a sharp turn in September, when the collapse of the U.S. banking giant Lehman Brothers triggered the worst financial crisis since the Great Depression of the 1930s.

    The eurozone, having close ties with the United States in the financial sector, was in no way to escape the negative effects of the credit crunch. Bad news came one after another.

    Either exposed to huge losses in the U.S. financial market or stuck in severe shortage of liquidity, European financial institutions including Dutch-Belgian banking group Fortis and Franco-Belgian bank Dexia fell prey to the crisis, forcing eurozone governments to infuse billions of euros in rescue efforts to keep them afloat.

    In an attempt to restore financial stability, leaders from the eurozone economies hammered out an action plan for a coordinated response at their first ever summit in Paris in October.

    Based on the plan, eurozone governments have pumped about 2 trillion U.S. dollars into their national financial rescues.

    But the bailouts undertaken by governments, together with efforts by the European Central Bank (ECB), failed to prevent the worsening financial crisis from further spreading to the real economy.