“There are legitimate reasons to be worried,” Alexey Mordashov, chief executive officer of Russia’s second-biggest steelmaker OAO Severstal, said in an interview in Cannes, France, where leaders of the Group of 20 economic powers are meeting. “We expect it to undermine growth in Europe.”

Europe’s financial crisis deepened yesterday as the European Central Bank unexpectedly lowered interest rates and President Mario Draghi said the region is heading toward a mild recession. Politicians raised the prospect of the euro area splintering as Greece’s government veered on collapse. Business leaders held a parallel “B20” summit in the French southern resort city on competitiveness and economic growth that was quickly overtaken by questions on Greece and the euro’s future.

“We would have to prepare for a slower economy and maybe even a slight recession in Europe,” Peter Voser, CEO of Royal Dutch Shell Plc, Europe’s largest oil company, said in an interview in Cannes. “We need a fast solution and then we deal with the consequences. From a business perspective, if this goes on too long, so much uncertainty, investment will be delayed.”

‘Unsettling’

Alcatel-Lucent SA, France’s largest supplier of telecommunications gear, today cut its profit forecast, citing uncertainty in Europe. Royal Bank of Scotland Group Plc posted a 63 percent decline in operating profit excluding some items as the sovereign debt crisis ate into revenue at its securities unit. International Consolidated Airlines Group, the owner of British Airways and Iberia, warned of weaker European demand.

“The European economy is entering a recession due to a credit crunch and higher financing costs,” Eric Chaney, Axa SA’s chief economist, said in an interview. “Companies are taking this into account by reducing their production to have cash. The question now is whether it will be deep or shallow.”

Bayerische Motoren Werke AG is already planning for slower economic growth next year and possibly a recession which may lead the world’s largest maker of luxury vehicles to reduce production, Chief Financial Officer Friedrich Eichiner said on an earnings conference call yesterday.

‘Unsettling’

Growth has slowed for high-end carmakers from a record pace in the first half as Europe’s debt crisis unsettles consumers. Daimler AG, maker of Mercedes-Benz, last month reported its first earnings decline since the third quarter of 2009, burdened by expenses for new models.

“The problem that we see is that the debt crisis risks unsettling consumers, and unconfident consumers don’t buy premium cars,” Eichiner said. “We are already seeing signs of weakness in southern Europe.”

The euro tumbled after the ECB cut its benchmark interest rate yesterday and then erased losses after Greek Prime Minister George Papandreou signaled he won’t call a referendum on the rescue plan. Volatility in the financial markets may cause banks to cut loans for developers of energy projects, Vestas Wind Systems A/S CEO Ditlev Engel said Nov. 2. Vestas is the world’s biggest maker of wind turbines.

Forecasts Cut

“We are now investing about 15 percent in Europe of the total of $30 billion overall which is much lower historically,” Shell’s Voser said. “The competitiveness of the European economy is suffering and that has consequences in the medium and long term in terms of investment levels.”

The Organization for Economic Cooperation and Development on Oct. 31 lowered its growth forecast for the euro area, saying it will grow 1.6 percent in 2011, slowing to 0.3 percent in 2012.

To be sure, some executives say they will continue to invest despite the region’s troubles. “We will continue to work and invest,” Christophe de Margerie, CEO of Total SA, Europe’s third-largest oil company, said yesterday in Cannes. “On everything that is linked to access to natural gas and long term energy reserves we will continue to spend.”

As Group of 20 leaders began their talks in Cannes, their focus was on Athens where Papandreou was clinging to power after abandoning a referendum that would have triggered a suspension of European aid. Amid concern Italy may be the next domino to fall as its bond yields jumped to an euro-era record, Prime Minister Silvio Berlusconi was pushed by Germany and France to accelerate an austerity drive.

“We see a certain lack of competitiveness, lack of productivity in European countries,” said Mordashov, Russia’s second-richest man with an estimated fortune of $18.5 billion. “We see a much stronger situation in some other countries and this is what needs to be resolved.”