Reserve Bank governor Glenn Stevens told us told us in his post-board meeting statement on Tuesday that Europe had the capacity for “adverse shocks for some time yet”. A day later and weak manufacturing and employment figures demonstrated the pain in Spain and the rest of the zone was dragged back to centre stage. The news will increase pressure on eurozone voters to reject austerity in favour of pro-growth policies, starting in polls this Sunday in France and Greece.

A day after Stevens wrote those words, the eurozone crisis returned to haunt markets around the world, overtaking the French presidential race (which climaxes on Sunday) as the next big test. No wonder the Aussie dollar remains solid, despite the fall after Tuesday’s rate cut from the RBA. Nervous investors reckon we are a “safe haven” compared with the euro. The dollar was about $US1.030 overnight in US trading.

For the European Central Bank, which holds its May meeting tonight (our time in Barcelona in Spain), it is unwelcome news that the time bought with two round of three-year loans to the region’s banks, has run out. Now its back to fear and loathing, with Spain the focus, and Italy not far behind. The ECB is starting to fret about the negative impact austerity is having across the zone and tonight’s meeting may see more commentary from its head, Mario Draghi, who has talked about the need for what he calls a “growth compact”.

Spain is again where the pain is being felt. The Spanish sharemarket fell more than 2.5% (and Italy helped with a 2.6% drop in its market and reported an 18% slide in car sales in April compared with a year ago) after the latest surveys of manufacturing showed the slowdown deepening. And figures released this week show that 11 of the 17 eurozone economies are now in a recession (two consecutive quarters of negative growth).

Spanish bond rates rose to nearly 5.9% and seem headed for 6% or more. Reuters reported that the country had sought advice from private banks, such as Goldman Sachs (which also advised Ireland) about its options. One of which is to create a huge “bad bank” to hold all the tens of billions of euros of dud property and housing loans in the country’s struggling banks. German bond yields fell to all-time lows (1.599% for the 10-year bonds) as investors worried, and US bond yields hit a three-month low of 1.9% before closing at 1.93%.

Australian bond yields yesterday fell to 3.65%, levels that we haven’t seen  for more than 60 years. That’s not a sign of the fears for an Australian recession (as low bond rates would normally be telling us), its further confirmation of the high level of demand for Australian government bonds by foreign investors who now own 75% or more of all federal bonds on issue (about $225 billion).

Eurozone unemployment hit 10.9% in March, up from 10.8% and the highest since the eurozone was formed (that’s an unwanted new high for the second month in a row). Even the German unemployment rate is now rising after falling to the lowest level since the country was unified. In fact the near 20,000 rise in German jobless wiped out all the gains made earlier in the year.

Inflation fell to an annual rate of 2.6% last month, according to the early estimate. That was down, but still higher than the European Central Bank likes. Howard Archer, chief European economist at IHS Global Insight in London, was quoted on “It now looks odds-on that the eurozone unemployment rate will move appreciably above 11% over the coming months with an ever-growing danger that it will reach 11.5%.”

Manufacturing activity across the 17-nation eurozone shrank at a faster pace than previously estimated in April, underlining those fears of a deepening recession for the region. The index fell to 45.9 from a reading of 47.7 in March and was below an earlier estimate of 46. (But that was better than Australia’s, which plunged 5.6 points in April to 43.9).

The report showed accelerating downturns for Italy, Spain and Greece, while core countries also saw shrinking activity. Germany’s manufacturing PMI fell to a 33-month low at 46.2. Spain was at a 34-month low at 43.5. “Manufacturing in the eurozone took a further lurch deeper into a new recession in April, with the PMI suggesting that output fell at worryingly steep quarterly rate of over 2%,” said Chris Williamson, chief economist at Markit.

Recession now grips economies such as Italy, Spain, Greece, Ireland, Portugal and the Netherlands and five others in the eurozone. Belgium missed out thanks to revisions and a surprise growth rate of 0.3% in the March quarter (With the EU headquartered in the country, it must be a talkfest-led recovery!). However, the UK is in recession, and as we have seen from Australian companies such as the NAB and Stockland, they are battening down for another rough ride in the Old Dart. The monthly survey of US manufacturing was good, showing another small rise in April (to a 10-month high), but factory orders fell 1.5% in March after a sharp rise in February to further confuse markets ahead of what is forecast to be a weak jobs report for April on Friday night, our time.

In Asia, the surveys of manufacturing were solid to strong: the two for China showed signs the country’s huge manufacturing sector is growing after slowing for most of the year. India is expanding and it was the same story in other major Asian economies (but Australia was the odd country out).  So now we have Asia starting to regroup and expand (helped by  the recovery in the US economy, which is now weaker than it was late last year and in January), and Europe sliding towards a nasty double-dip slump. And then we have the politicians, starting with Sunday’s polls in France, Greece and Germany.

It’s 2010 and 2011 all over again.