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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  • Comment number 123.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 122.

    Perhaps they should do something about it then. Like stop spending money on Trident. So many trillions of pounds could be saved and sent to important parts of our lives like education and healthcare.

  • rate this

    Comment number 121.

    Europe leaders warn of difficult 2012.
    To this statement my question to them, is the following: What have been done in Europe for the past ten years by the various Euro’s architect, politicians, European central bank, European commissioner and so on, to prevent this dangerous situation, that at the end, is penalising with tax increases and recession essentially ordinary people ?

  • rate this

    Comment number 120.

    The citizens of the richer countries suffer needlessly. The citizens of the poorer countries suffer pointlessly. E.g. Germany since WW2 has made 2 trillion € of debt and has paid 2 trillion € in interest payments. So nobody has profited apart from those who lent the money. We need a new Alexander the Great to cut this Gordian knot.

  • rate this

    Comment number 119.

    We get what we deserve. We vote people in on the basis of self-interest and cry foul when 'they' behave in the same fashion. Time to work together for the common good from the PM down and rid ourselves of cronyism and the 'me culture'. It's not rocket science, but our own motivations are stopping us - we are our own worst enemies

  • rate this

    Comment number 118.

    Firstly, politicians tend to get elected because they claim to be able to protect us from bad things or give us more good things. They rarely do, because it costs money to do either. All the time that Governments spend more than they raise in taxation, they borrow to fund the difference, and merely delay the inevitable day of reckoning, which is now unavoidably close. We ain't seen nothing yet....

  • rate this

    Comment number 117.

    Firstly, there are a great deal of companies in Europe who are performing well inspite of the political turmoil. Secondly, I actually think that the BBC reporters have done a good job in explaining whats happening. Other countries don't have the benefit of objective reporting, you'll find that out if you ever live overseas. Don't shoot the messenger!

  • rate this

    Comment number 116.

    I am sure that all the negative talk is hindering the recovery. Every newspaper, TV/radio news programme , news website etc is full of doom and gloom. Lets try being positive for a change

  • rate this

    Comment number 115.

    Happy 2012.....

  • rate this

    Comment number 114.

    Corrupted rating agencies in America, Enron Lehman Brothers and others all got AAA for years.AAA rated toxic dept and loans given to countries in europe why is anybody taking any notice of these agencies and what is their agenda.Countries in a resession need to expand the economy to increase tax base for paying back loans.the rating agencies are frightening contries into doing the wrong things.

  • rate this

    Comment number 113.

    Good. A cheery little non-story to begin the year with.

    We don't get natural disasters repeatedly visited on us as in Pakistan, New Zealand, and Africa.... so we should have every chance of getting traction with our issues during 2012.

    I'm not saying it will be anything but difficult, but it is at least in our own hands.

  • rate this

    Comment number 112.

    More non news the Euro should not be some iconic currencvy that should be kept at all costs it would be a policitcal failure if it went but not an economic one. There lies the problem political ego's the sooner all these countires take a step back and look what this currency can do for them and realise that it is not essential for their respective economies the better. Trade yes the Euro no.

  • rate this

    Comment number 111.

    #30 Luther_Wesley-Baxter: Your comment is irresponsible. Many people believe that what you say (or anyone else) is the attitude of your country; consequently, you create animosity toward your own country. p.s. your application for the diplomatic corps has been rejected.

  • rate this

    Comment number 110.

    Our leaders sought to make themselves permanently elected by telling us we could have it all as long as we kept quiet and paraded through the voting booths as we were told to.

    Now we shall see if the fatal flaw of modern democracy - bribery, both internal and external will be its undoing?

  • rate this

    Comment number 109.

    Rating agencies gave Greece an economic bill of health facilitating her entry to the EU, which would suggest they hardly took their investigative task seriously. Then they play around with ratings of other countries and sit back waiting to accumulate. Something's rotten and it's not in the state of Denmark.

  • rate this

    Comment number 108.

    101: "Why are we so fucssed on doing business with the economic wastelands of Europe when there is a whole new market in the BRICs countries and elsewhere?"

    Because the Eurozone is the world's biggest market, bigger than all the BRIC's countries put together.

  • rate this

    Comment number 107.

    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 have any. How's life Mr Branson, Mr Clapton, Mr Ecclestone etc...?

  • rate this

    Comment number 106.

    We all know there is no better way to spur on growth than to keep on about doom and gloom, it loosens wallets and encourages spending lol.

    We need to buckle our belts has never helped to pay tax or create jobs, whilst we need to the government to do that we need a little hope for the rest of us.

  • rate this

    Comment number 105.

    Why can't they just shut up for a bit?

  • rate this

    Comment number 104.

    These countries brought debt with them into Euro. Divide up what is now owing between them and go back where they were.
    That way they have control and if they make a further mess - cannot blame anyone else


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