Hamish McRae: When Greece eventually defaults it need not derail the recovery across Europe

Economic Life: This two-speed Europe is likely to run for a while yet - countries with competitive export sectors will perform well, those with weaker ones will struggle

There is some sort of slowdown, of course, at least in the developed world. That is evident in the US, here in the UK and across Europe – Japan is a separate case for obvious reasons. In the emerging world there is no such pattern, however the two largest emerging economies, China and India, are both seeking to pare back growth as they are worried about inflationary and resource constraints.

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So we, you might say, are all in it together. But Continental Europe is in it more "together" than most, as there seems to have been quite a sharp decline in corporate sentiment in the past six or so weeks, as well as the more recent worries about Greek solvency. That leads to an intriguing question: is the deteriorating sentiment in Europe simply the result of concerns about a Greek default and its consequences for European banks and the other weak eurozone economies, or is there something more sinister happening?

The usual rule-of-thumb indicators you look at when trying to gauge what is happening to an economy are the purchasing managers' indices. You ask companies a string of questions: whether they think they will increase output, hire more people, charge more for their stuff and so on. Then you tot up the companies that expect to increase output, subtract those that expect to decrease it, and see whether the total is above the half-way mark at 50. Anything above suggests expansion, anything below the reverse. You can then fit these to give a prediction for the rate of growth three months or so ahead.

As you can see from the top graph, for the eurozone as a whole, the "fit" is pretty good. The downturn was somewhat deeper than might have been expected but the recovery came as expected. But now things have dropped off a bit – the red line has been falling for a couple of months. The latest figures, out yesterday, would suggest growth running at just under 0.5 per cent quarter on quarter, or a bit under 2 per cent annualised, and as far as I can see there is only one country in the entire eurozone where industrial production is back to its previous peak. More about that in a moment.

Moreover there are huge differences across the eurozone. RCB Capital Markets notes that German manufacturing and French services have led the way down. Both are still positive so they are signalling continued solid growth; it is just that the signal is somewhat less strong than it was a couple of months ago.

Another way of looking at the eurozone economy is to take industrial production. That is what is actually happening, not what companies think will happen, so you get the information with a time-lag, but it is hard information. The bottom graph shows the extraordinary divergence, but it is a divergence with a twist. Trick question: which eurozone country is closest to its previous peak in industrial output? Surprise answer: Ireland.

If that is surprising, remember that Ireland is a two-speed economy. Export demand has been fine pretty much right through the crisis but domestic demand has been catastrophic. The export sector has not been big enough to hold up the economy, though the latest quarterly growth figures are positive. But as you can see, everyone else is still down on the peak, even Germany. Germany has, however, staged a much stronger recovery than France, Spain, or Italy and vastly stronger than Greece.

This two-speed Europe seems likely to run on for some while yet. Countries with competitive export sectors will continue to perform reasonably well, while those with weaker ones will struggle. But as a whole the eurozone will continue with steady, if unexciting, growth. The fact that companies in both Germany and France are still positive about their prospects does suggest that the Greek woes are not as yet having a significant impact on European business confidence, and maybe none at all.

Might that change? On Tuesday evening Jean-Claude Trichet, the president of the European Central Bank, said that risk signals for financial stability in the eurozone were flashing "red" as the debt crisis threatened to infect its banks. He said that the link between debt problems and banks "is the most serious threat to financial stability in the European Union".

If Trichet is ramping that particular danger up, his counterpart at the US Federal Reserve, Ben Bernanke, was also voicing concerns. He was suitably gloomy about the US economy and his remarks, coupled with bad employment figures, helped drive down share prices around the world. And on the specific issue of a eurozone sovereign debt default, he said: "A disorderly default in one of those countries would no doubt roil financial markets globally. It would have a big impact on credit spreads, on stock prices, and so on. And so in that respect, I think the effects in the United States would be quite significant."

And yet, is it not inherently improbable that what goes on in one, or at most two or three small European countries, should damage share markets around the world? Surely the Greek tail cannot wag the global dog?

You get into a debate as to whether a Greek default will be "systemic" in the way that the collapse of Lehman Brothers clearly was. With hindsight it would have been much cheaper to have rescued Lehman rather than allow it to go down and then try to avert the global cardiac arrest that nearly ensued.

I don't think anyone can be sure about this either way. My own judgement is that a Greek default would not be systemic. It would not bring down European banks (though some might need help) nor would it destroy the euro. The reason for believing that it is such an event is already "in the markets".

On the first point I saw a calculation yesterday that there was an 82 per cent chance that it would indeed default and when you have got to that point, the game is over. As for the euro, aside from the past few days, it has been quite strong, at least against the dollar and to some extent sterling. The markets seem to be taking the view, surely rightly, that the European Central Bank is a better custodian of the value of the currency than either the Bank of England, which seems to have pretty much given up on inflation, or the Fed. If you want to hold euros you might think yourself wise to have them in a German bank in Germany, rather than anywhere else. But just because a country cannot pay its debts does not mean that the currency itself is devalued. Indeed it is precisely because the debts are in euros that they cannot be devalued.

So on balance it feels as though this is just a typical early-cycle pause for the eurozone, rather than anything more serious. We tend to forget how long it takes to correct the string of imbalances that build up in the growth phase and then are exposed in the slump. Some of those imbalances are now well on their way to being corrected: US house prices, for example, are now very affordable relative to past levels, though for now they are still falling. In Europe, Ireland is getting back to business, though it will be a long time before it is trusted enough to be able to access the capital markets. But Greece can't dig its way out and the sooner that is accepted the better for all.