Europe's debt crisis simmers

Greek teachers protesting in Athens, 11 Jul 13 Athens: Teachers are angry about cuts - as are their public sector colleagues

To visit Rome is to be reminded of just how fragile the current calm in the eurozone is.

This morning the construction industry held its annual conference. Construction accounts for 15% of Italy's GDP. One company owner said the industry was facing its gravest crisis since World War II: 11,000 companies have collapsed, with a loss of 690,000 jobs.

There are also new threats to the governing coalition. Silvio Berlusconi - whose party is in the coalition - is fighting to avoid a ruling by the Supreme Court at the end of the month that could see him barred from public office. He maintains the legal case against him (he was convicted of tax fraud) is politically motivated. Yesterday his party disrupted proceedings in parliament in protest.

One senator said openly that if the court ruled against Berlusconi the party would leave the government, possibly triggering fresh elections. One Italian paper said the coalition was hanging by a thread.

Only this week a credit ratings agency downgraded Italy to two levels above junk status.

'Ready to revolt'

In Greece the coalition will struggle to get through parliament the new measures which will enable the next tranche of bailout money to be paid. The laws have to be passed by next week.

Nearly a dozen coalition MPs are raising objections to the deal, particularly the moves to reduce public sector staff by 12,500. A general strike has been called for next week. Police officers have been protesting and occupying offices over the loss of jobs.

Today the Greek unemployment rate went up to 26.9%. Between 700 and 1,000 people are laid off each day. I was struck by a comment made by someone who has been unemployed for two years. "Things are really terrible, terrible. We are all ready to revolt. We are on the edge. There is hunger everywhere." No one knows whether such despair will be reflected on the streets.

It is accepted that Greece has a funding gap of 4bn euros (£3.4bn; $5bn) over the next 12 months. That might require further belt-tightening. Almost certainly Greek debt will have to be, once again, restructured. At some stage German taxpayers will have to be told the truth - some of the money they loaned towards the Greek bailout will not be repaid.

Southern malaise

In Spain, Prime Minister Mariano Rajoy is facing a fresh round of allegations that he accepted illegal payments. He denies the reports, but the corruption scandal is deepening.

In Portugal the president has called on the three main parties to agree a "national salvation pact" around the current reform/austerity programme. But the political consensus has weakened. Many now say that the Brussels/Berlin strategy - with its emphasis on deficit reduction - is leading to stagnation. There are increasing doubts that next year Portugal will be able to return to the markets to fund itself.

In Cyprus, the economy has slumped badly after the bailout and very little progress has been made in restructuring the Bank of Cyprus.

Southern Europe is struggling, hoping against hope that in the final quarter of this year growth will return. It remains clear, however, that much can still disturb the superficial calm in Europe.

Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this

    Comment number 68.

    66 austriacus
    It was the EU who ignored referendums, or made people vote again..

  • rate this

    Comment number 67.

    45 margaret howard
    '...the euro keeps rising while the pound...'
    So did tulip bulbs.
    The issue is not the relationship between the euro and other currencies, it's the adoption of the euro by ill suited economies.
    No doubt reform of some of those countries is a prerequisite for deeper and closer union. An approach based on reason instead of faith might have put that realignment first.

  • rate this

    Comment number 66.

    61. EUprisoner209456731
    "The very existence of the "EU" is undemocratic since we were promised a referendum that we did not get"

    It was the NATIONAL governments who denied referendums, not the EU.

  • rate this

    Comment number 65.

    those who can't survive with out government subsides always suffer since if you can't support yourself. you out luck when the government can't steal any more from those who do real work.
    But this normal survival of fittest and predators cull the weak from herd
    it is not pretty but that is how life works.

  • rate this

    Comment number 64.

    30. kane
    "Nationalisms, particularly the French and British varieties thereof, paralyze the EU."
    That was a very nationalistic comment, my right honourable friend. But I'm heartened to see that your blame blanket has widened to encompass two of the biggest contributors to this "project"

    I do not see Austrian nationalism causing much harm to the EU :-)

  • rate this

    Comment number 63.

    The EU in it's present form can never work, how can a country who manufactures Porsche, Mercedes and Audi, has a high standard of living and employment rate such as Germany, operate same Exchange rate as a country where corruption is rife, unemployment is almost 30%, and half the country picks olives for a living.

  • rate this

    Comment number 62.

    There will be no end to the EU debt crisis while weaker countries economies are tied to the single currency . One size does not fit all and never will . Either countries like Greece , Italy , Spain and Portugal must be allowed to revalue their Euro currency , leave the Euro all together , or the Euro should be abolished and each country return to their original currency .

  • rate this

    Comment number 61.

    29.margaret howard

    "Luckily Europe is in much better shape with proper democracy"

    The very existence of the "EU" is undemocratic since we were promised a referendum that we did not get.

  • rate this

    Comment number 60.

    Gavin, the debt is a symptom of deeper problems of political mismanagement and unbridled demagoguery. Politicians promise the moon, votes expect it, and debt is the how the politicians fill the gap. It cannot work, and the far right (Golden Dawn in Greece, Mme Le Pen in France, etc) lick their lips in the wings, anticipating power. It's the 1930s again...

  • rate this

    Comment number 59.

    Re 58---another over-the-top alarmist posting from someone famed for them:)
    The EU will weather the worldwide financial crisis better than most and will emerge stronger as the most powerful trading bloc in the world (as it is now) and , hopefully in due course when the dust settles, as a Federal State that will be a true world power.Let's wish Greece,Port etc well first and thank Germany for aid.

  • rate this

    Comment number 58.

    Europe is dying.Nobody is preparing for the end or what will come after.Typical of it in such situations to first pretend what's happening isn't and then improvise by cobbling a thrown together plan by an ad hoc committee that will stumble and fall.The string is about to run out.This could be the year.The smartest people in Europe have gotten their assets out already and are packed to move.

  • rate this

    Comment number 57.

    Re 37---Lucy as astute and erudite as usual. I suggest Lucy that the major change you view as necessary is the creation of a Federal Country known as The EU---democratically, directly-elected MPs to a Parliament that would carry the weight that such elected assemblies carry : instead of the much-loathed beaurocrats who run so much of fragmented EU at present. Federal EU is answer to Tory Taliban !

  • rate this

    Comment number 56.

    This is a much wider crisis than just EU(recall how badly Iceland suffered early on?).The EU has actually been a lifeline to some of the most vulnerable countries--if they are part of EU they have received much-needed help.And with Ireland affected, it's not just Med Countries.Both Greece & Portugal are wonderful countries & people and I feel so sorry for them.EU Federalism would help a lot more !

  • rate this

    Comment number 55.

    Who is pumping up Euro?Is it the FED?Eventually the law of gravity will bring that lead trial balloon to ground when all the gas goes out of it.Will the election in Germany later this year loom large as a crisis for Euro?Will there be a flight to quality (USA) before the election if it seems Merckel could lose?There's still time to get out but it may be getting very late.Europe's sun will go nova.

  • rate this

    Comment number 54.

    The EU financial and economic implosion with dire social consequences continues undiminished.Between immediate crisis points the media ignores it.The underlying causes remain unaddressed.Greek tax collection, Cypriot bank reform no, its business as usual.When will the final collapse come?When Merckel loses to a coalition that opposes further German money going to bailouts?That could do it.

  • rate this

    Comment number 53.

    "We are all ready to revolt" - I can see you frothing at the mouth, Gavin!

    Yes, Greece and Italy are in debt. They will be for another 10 years at least. So are Spain, Ireland, Portugal, France and... let me think - oh yes, the UK!

    Are you going to keep copy-pasting until then or do you have some news. Or even some constructive in-depth analysis? To WHOM are they ultimately in debt, for example?

  • rate this

    Comment number 52.

    The euro was a mistake. You cannot have a stable unified currency with every member has it's own budget policy, supervised by its own politicians, who are answerable to their own voters. The longer it takes the Eurozone members to admit it the more painful it will be to correct the error.

  • rate this

    Comment number 51.

    #48 Makis

    `Receipt collection to be enforced and encouraged´

    --are you sure the problem is only the Greek government ?

  • rate this

    Comment number 50.

    #48 Makis

    "if someone from the many frustrated citizens of this country would tell you that he wants to set fire on the parliament..."

    -- How would you solve the problem ?

    "“It must be understood that the forces that came together to form SYRIZA and brought it this far are the guarantors of its transition,”

  • rate this

    Comment number 49.

    #46 Exile

    -- Brazil has said it would bring before UN --´Spiegel´ believes it may be only way -- Merkel is presently hopeless on this front.

    -- Agreed, totally screwed up -- either we give Communism a second chance --or Fascism will take it.

    --any views ?


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