Europe leaders warn of difficult 2012

Chancellor Angela Merkel pictured after giving her New Year's address - 31 December 2011 German Chancellor Angela Merkel heads Europe's largest economy

European leaders have warned of a difficult year ahead, as many economists predict recession in 2012.

German Chancellor Angela Merkel said Europe was experiencing its "most severe test in decades" but that Europe was growing closer in the debt crisis.

France's President Sarkozy said the crisis was not finished, while Italy's president called for more sacrifices.

Growth in Europe has stalled as the debt crisis has forced governments to slash spending.

The leaders' new year messages came as leading economists polled by the BBC said they expected a return to recession in Europe in the first half of 2012.

The cost of borrowing for some of the eurozone's largest economies, including Italy and Spain, has shot up in recent months as lenders fear governments will not be able to pay back money they have already borrowed.

With growth stalled, the pressure is on governments across Europe, not just ones using the single currency, to cut spending in order to meet debt obligations.

Fears are now focusing on a potential second credit crunch, triggered by the exposure of banks across Europe to Italy's huge debt.

Euro defended

In her TV address, Chancellor Merkel said that despite Germany's relatively good economic situation, "next year will no doubt be more difficult than 2011".

Start Quote

The most likely outcome in pure economic terms is a moderately bad fiscal crisis, a survivable sovereign debt event and a sharp growth downturn, all in the first half of the year”

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"The road to overcome it [debt crisis] remains long and not without setbacks, but at the end of this path Europe will re-emerge stronger from the crisis than it was when it entered it."

She defended the euro, saying it had made "everyday life easier and our economy stronger... and protected from something worse" in the financial crisis of 2008.

Heading into an election year trailing his Socialist rival Francois Hollande in the polls, French President Nicolas Sarkozy said structural changes to the economy were needed in order to return to growth.

"I know that the lives of many of you, already tested by two difficult years, have been put to the test once more," he said in a televised address.

French President Nicolas Sarkozy gives his New Year's address - 31 December 2011 French President Nicolas Sarkozy faces an uphill battle to be re-elected in April

"You are ending the year more worried about yourselves and your children," he said.

But after having already pushed budget cuts in order to forestall a downgrade of France's treasured AAA sovereign credit rating, he promised there would be no more budget cuts.

"What was to be done was done by the government," he said.

Mr Sarkozy is due to meet Mrs Merkel in early January to push forward a European Union agreement in December for a new fiscal compact.

'Unavoidable' sacrifices

The president of Italy, the eurozone's third-largest economy, urged people to make sacrifices to prevent the "financial collapse of Italy".

President Giorgio Napolitano said: "Sacrifices are necessary to ensure the future of young people, it's our objective and a commitment we cannot avoid."

Greek protester Government austerity has undermined growth and caused a great deal of anger around Europe

Fears that Italy might need a Greek-style bailout that Europe would have difficulty dealing with have forced the government's borrowing costs up and led to the replacement of Silvio Berlusconi by Mario Monti, leading a cabinet of unelected experts.

"No-one, no social group, can today avoid the commitment to contribute to the clean-up of public finances in order to prevent the financial collapse of Italy," President Napolitano said.

"The sacrifices will not be in vain, especially if the economy begins to grow again."

Greek Prime Minister Lucas Papademos, another technocrat who was appointed to lead an interim coalition government after the debt crisis forced George Papandreou to resign, also warned of a difficult year ahead.

"We have to continue our efforts with determination, so that the sacrifices we have made up to now won't be in vain," he said in a televised address.

His government has imposed harsh austerity measures in order to ensure Greece continues to receive an international bailout.

The austerity measures, begun in 2010 by the previous government, have led to mass protests and riots as high unemployment, raised taxes, salary cuts and reduced government services take their toll.


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  • rate this

    Comment number 83.

    RE.77Sorry mate i know the truth hurts sometimes but you have to take it on the chin like a true Brit.

  • rate this

    Comment number 82.

    We're looking in the wrong direction. Brazil has just overtaken our economy and we sell more to Belgium than to Brazil. We should be concentrating on developing our market in the developing Americas and use Europe as our bread and butter. The EU is a nasty little club for career politicians with a high membership cost and it doesn't fit the British character.

  • rate this

    Comment number 81.

    What a jolly bunch these so-called euro leaders are. Thanks so much for the new year's message of doom and gloom. Just what the people in the continent need to listen.

    No message of hope, of motivation, just the same pathetic droning of woe be us, and "you've been warned". This bunch won't be known as good leaders or even competent problem solvers

  • rate this

    Comment number 80.

    Not more of the same - they simply do not have an answer.

  • rate this

    Comment number 79.

    Now that we have had the grand New Year speeches from the Eurozone leaders, does that mean that they are get on and sort this mess out. Or get ready for the next summit to make more grand speeches and half baked ideas that don't even address the real problem.

    If the Euro falls apart, it does not mean that the EU will break up or that we are going to have war!!

  • rate this

    Comment number 78.

    Abhijit Lahiri :European economy is on the verge of collapse owing to the extravagant ways of functioning without having a thought on devising a prudent fiscal policies which could stimulate inclusive growth and ensures ‘community index of happiness’. Instead , the European commoners, at the grass-roots level, are experiencing the toughest challenge in their daily life for no fault of theirs.

  • rate this

    Comment number 77.

    Mr GrumpySleepless...kindly do not address me as *Mate* - in no sense is does that term apply to your relationship to me.

  • rate this

    Comment number 76.

    It is clear even now that the slow and programed break up on the PIIGS from the euro and the halt of others entering to stop this mess.

    Why at a time like this, the EU is allowing anyone to join the group with the mess ee are in. Let's sort it out and carry on!

    Personally, I dont believe the EU is good for Britain, the 11bh that we put in could be put to better use in the UK.

  • rate this

    Comment number 75.

    Europe is on the edge of financial meltdown! We have maybe 3 days reserves of food and fuel before the governments must implement emergency orders (the select few being brought in to safe areas, protected by security forces). The rest of us will degenerate into primitive mobs, battling for food and power, forming raiding parties, the weakest being eaten. Just a thought. Happy New Year all!

  • rate this

    Comment number 74.

    "We're all in this together". Err. No we're not.

  • rate this

    Comment number 73.

    What's wrong with a 'stall'?

    Freeze all mortgages, credit cards, wages, bonuses, premiums, dividends, interest (in and out), taxes, salaries, etc. etc. for everyone .

    Let's take a year off from 'perpetual growth', take stock and re-define what we 'all' want and where we are 'all' going. Just one year!

    If the spuds are boiling over just take 'em off the heat for a while!

  • rate this

    Comment number 72.

    We need an end to this farce. Merkel and the rest of the moral devoid lunatics in power see more debt coupled with a reduction in revenue generating programs (Greece) as a solution to our current crisis. And now look what's happened, we're heading into an abyss, literally. The next few years could possibly be the worst economic disaster we've ever faced and who knows what the outcome will be.

  • rate this

    Comment number 71.

    RE 49.Sorry mate get your head out of the sand,dont see many immigrants rushing home now that there are no jobs,Hmmmm now could that be because of our over generous benefit system that benefits them more than the British tax payer who has worked hard all his life and then gets no help when he loses his job. .

  • rate this

    Comment number 70.

    The Germans can afford to be smug as they have a very productive economy that actually competes with the Far East. What have we? A few manky call centres and burger flipper jobs. Cameron calls that growth. We will get no where with Cameron and Clegg in charge. The LIbs are obsessed with Climate Change and teh effects of that obsession will be to ruin us all.

  • rate this

    Comment number 69.

    "Honestly. it's as if they are planning to bring about the collapse by ensuring no confidence at all."

    So you would prefer propaganda where the news is censored and they blatantly lie to the people in order to satisfy some bankers and traders? Holding people to account with instill far more confidence than lying to the masses and hoping to dupe them! Shocking some actually believe this

  • rate this

    Comment number 68.

    48. Little Child
    All capitalist systems come of the rails at intervals. The current one based on a bubble of cheap money and greed.
    Germany having lost the 2nd WW had a destroyed economy and infrastructure. Look at her know 65 years later one of the worlds strongest mixed economies.
    The UK could learn a lot from Germany. Be open minded.Aware of our history but dont live in the past.

  • rate this

    Comment number 67.

    Enjoy the spectacle. £100 million yachts (notice plural) moored up for the Olympics, while folk with no work and no hope of work perish not a mile away. Some person, institution, body or government needs to re-evaluate their values if they not have any. How's life Mr Branson, Mr Clapton, Mr Ecclestone etc...?

  • rate this

    Comment number 66.

    Anyone as sick of all of this as i am. Our leaders have failed us they dont work for us anymore and i dont belive they ever will again. Nothing short of a revolution will change the way the UK is governed or the way Europe is run. The rich are looking after themselves and the 99pc are paying for it. Hope the Euro fails soon and an end to this drawn out faulure called the EU.

  • rate this

    Comment number 65.

    Tying the currencies together of counties with wildly differing economies was always going to lead to disaster eventually.
    The only way to solve the Euro crisis is for each country to return to it's former currency and let the exchange rates decide the worth of each one....
    Whey DO you get your ideas from?
    Those currencies were in FAR WORSE state prior to joining the Euro!

  • rate this

    Comment number 64.

    The solution is simple. Leave the EU which will save 100's of billions, free us of red tape, reduce taxes and become the Hong Kong of Europe


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