Sign on the London Stock Exchange building
Sign on the London Stock Exchange building - 
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Stacey Vanek Smith: On Friday, The Dow Jones Industrial Average shed about a tenth of a percent. This morning London's Footsie and Germany's DAX both down more than 3.5 percent. Paris' CAC 40 is down 4.8 percent. And it may not be just a knee-jerk reaction. Europe is talking recession, as Megan Williams reports.

Megan Williams: Stocks in Europe took a major dip this morning with news of the Lehman Brothers bankruptcy and Bank of America's take-over of Merrill Lynch. Last week, European stocks shot up to a recent high when the U.S. government said it would take over Fannie Mae and Freddie Mac. But with no more short-term government shore-ups, says UK market strategist Joshua Raymond, Europe is bracing itself for the worst.

Joshua Raymond: Any sort of relief always tends to give like a very short-term relief. I mean the best example is the Fannie Mae and Freddie Mac scenario, but fundamentally, we're on the downslide here.

European Central Bank reacted to the news by saying it will lend financial institutions as much money as they need, but not by cutting interest rates. The central bank began auctioning loans at 4.25 percent this morning.
Joshua Raymond says even with help from the ECB, Europe, and especially England, is in for a recession.

Raymond: We're looking at negative growth certainly in the UK, I would say, and obviously in France and Germany. The worrying sentiment here is that France and Germany might be in a better position to return to positive growth in the nearer term than the UK.

Raymond says Germany and France are less entwined with the U.S. housing market loans, while the UK is closely trailing the U.S. -- for now, downhill.

I'm Megan Williams for Marketplace.