Russia is the only European country that is shrinking (population, not economy, as of now at least) , and Western Europe has had and still has steady and healthy growth.
Eastern Europe is on a rapid rise, especially Slovakia, Slovenia, Poland and a few other countries who are relatively fresh in the European Union.
All in all; Europe is growing, more markedly so than any continent save Asia right now, with slightly more stability due to external help from the EU.

There are a few big chances for Europe:

-Germany, it's already one of the wealthiest economies in the world, and like 100 million people live there, but it's kind of consumed by PC gaming. Hopefully Wii and DS can change this.

-Eastern-Europe. If countries like Ukraine, Latvia, Poland, Romania, etc can become as big economies as Western-European countries, the potential is huge. I mean, only half of Europe's population lives in a games market, in most countries almost no games are sold.

-The prices. In Europe the prices of games are sky high. If they reduce prices enough, more people will logically buy them.

The economy is not THAT bad right now, really I think it is a perception caused by high gas prices, rising national debt(most serious), and the ongoing war in Iraq. Basically the economy is slow, but not terrible, most of the problem is Psycological.

Even though we discuss and track Europe as a single region, it really isn't. There are different languages, laws, customs, distribution networks, etc for different countries. Same goes for Asia. Whereas Japan is one country and the USA are Canada are very similar.

 The amount of money that I lost on stocks and investments in the past 3-4 months certainly has had a psychological effect on me.

on one good day

Actually the population was around 82.4 million in mid 2007 and is slowly declining (which is good in my opinion; this country is already very densely populated and sometimes I got the feeling that everyone owns three cars and claims a personal Autobahn section).

PC gaming is still huuuge over here, that's true. There's a lot of people complaining about games developed for consoles and ported to PC. Passionate discussions about survival of PC gaming in every German game forum.

And yes - while the PS2 clearly initiated the slow change - now especially the DS (not so much the Wii) seems to push the change further. It's interesting though how big the French console/handheld market still is compared to Germany, not to speak of UK. I didn't know the difference in European markets until I found VG Chartz.

I actually believe that Asia has the greatest chance of being the worls greatest game market, but piracy is stopping them.

Yes, and soon.

ps - Russia is part of Europe ehh, as thing improve there gaming will grow.

It could be. In some games. and maybe some day.

Like in China Mario and Sonic is selling really well.