Data released on Thursday, as regards the European economy, showed unexpected strength in the second quarter. Contrasting sharply with the situation at the beginning of the year these statistics offered the clearest evidence yet that rather than a recession Europe would most likely experience a very modest expansion later in 2009.

The easing of the recession put Europe and the United States roughly on a par with each other, with the United States’ economy shrinking at an annual pace, in the second quarter, of 1 per cent to Europe’s 1.2 per cent. However, economists see a difference in recoveries next year, with the U.S. bouncing back more quickly than Europe. Lagging efforts to repair a damaged banking system in key countries like Germany, plus rising unemployment are keys to the negative outlook over the remainder of the year.

The International Monetary Fund has criticized European countries for not moving quickly enough to recapitalize banks and clean balance sheets of bad assets, although it may be healing faster than expected.

The European Central Bank, on the other hand,  optimistically projects lower losses than the I.M.F, suggesting a banking recovery is under way. Recent data suggests credit flows are easing, despite individual countries reporting problems with longer-term loans.