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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  • Comment number 88.

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

  • rate this

    Comment number 87.

    "EU Federalism would help a lot more !"

    Just like Soviet federalism helped Azerbaijan, Estonia, Lithuania, Latvia, Kazakhstan, Turkmenistan, Ukraine. Uzbekistan, etc.

    And Yugoslav federalism helped Bosnia, Croatia, Montenegro, Slovenia, etc.

    United States of Europe pipe dream is kaput. With Catalonia wanting out of Spain, Basconia out of France, Flamandia out of Belgium, etc.

  • rate this

    Comment number 86.

    Replacing a local currency with the Euro simply changes the medium of exchange.

    Of itself, it has no effect on underlying economic productivity, hence wealth. If you were poor, you stay poor.

    Unfortunately the Euro was sold, and has been interpreted, as an easy way to jump directly to a German standard of living without doing the hard part of actually building a successful economy.

  • rate this

    Comment number 85.

    "Smart people, the Germans, are trying to get 300 of their 1,500 tonnes of gold out of US "storage","
    Smart Germans, though not honest ones, have been trying for years to get their money out of Germany to such tax havens as Andorra, Caymans, Lichtenstein, Luxembourg, Monaco and Switzerland. With German government paying millions to get info on accounts in which they keep their untaxed money.

  • rate this

    Comment number 84.

    "I think you'll find far less misery and poverty in the EU than the US"

    Pure baloney.

    US unemployment rate is ca 3 times lower than in EZ, and it's growth rate is @ ca 2% per year. Whereas Germany (the strongest EU economy by far registers a growth rate of 0.1%
    [I won't mention France]

    With Portuguese seeking employment in Angola and Mozambique, while Spaniards in Latin America.

  • rate this

    Comment number 83.

    Portugal, Greece, Italy, Spain - limited or NO growth, no jobs. Then there is the hidden secret: France follows close behind. These problems are going to go on and on; they spell MELTDOWN, worse than 2007/8.
    Imagine when US FEDs stop the printing machines (the ongoing, hidden bailouts).
    Down go the stock markets; reality will stare the world in its unrecognizable & revolutionary face!

  • rate this

    Comment number 82.

    81: The poster to whom I was replying was writing about the EZ, not the EU.

    Fiscal and eventual political union are needed, and a route to this is being mapped.

    I think you'll find far less misery and poverty in the EU than the US, whatever the UE figs, and immeasurably less than most of the world.

  • rate this

    Comment number 81.

    78.The J Hoovers Witnesses
    It's indeed acknowledge the problems & are taking the needed steps.

    When it comes to acknowledging the problems & taking the needed steps, the proponents of the EU are wearing a hood over a blindfold over their blinkers mate!

    European unemployment, misery and poverty is the consequence of the EU.

    Feel free to argue otherwise.
    If you can

  • rate this

    Comment number 80.

    #73 There are many examples of single currency zones (UK is one). The idea that single currency zone is only successful if there is a political union is flawed because it misunderstands cause and effect.

    For a single currency zone to be effective it requires large scale movement of labour across borders and large scale public wealth transfers. EU does not do either at a large enough level

  • rate this

    Comment number 79.

    "The smartest people in Europe have gotten their assets out"


    Smart people, the Germans, are trying to get 300 of their 1,500 tonnes of gold out of US "storage", but it seems to have been "mislaid" so they'll have to wait 7 years, until the price has completely collapsed, post EZ stabilisation, one expects.

    Funny, that.

  • rate this

    Comment number 78.

    "Clearly the experiment is in great difficulty & clearly its ideologues will not recognize it, & they are the problem.

    What not true?"


    You implicitly assert the EZ is an experiment. What is the evidence for this? By whom? To establish what?

    It's proponents, as far as I can see, do indeed acknowledge the problems, and are taking the needed steps.

  • rate this

    Comment number 77.

    This is a naive and somewhat grotesque generalisation.

    Sure the top chiefs earn too much, but what about Nurses? Road sweepers? School dinner ladies?

    But what really destroys this argument is that these people take their meagre wages and BUY the goods and services the private sector produces.

    Without this demand from public sector workers, the private sector would starve.

  • rate this

    Comment number 76.

    72 Soothseeker

    Well said. You could also add the banksters who have been defrauding the whole world and the so-called pension funds who have been taking their clients' money and squandered it on ill-advised ventures or even themselves.

    Millions of people have been left without a pension which they invested in for decades.

    Yet none of the above have ever been brought before any courts

  • rate this

    Comment number 75.

    Europe either needs its own "Fed" to mutualise its debt, or it needs to release the southern states from the euro and work on a smaller more efficient northern lead European Union or pack up and go home and let the whole thing tumble down... ofc this will lead to the rise of Far right groups and a lot of death

  • rate this

    Comment number 74.

    .the knee jerk, reactionary Europhobes.. swivel eyed loons...


    Once again, you prove that you are completely incapable of proper discussion and instead resort to the single attack remaining to EUphilia as your sandcastle of lies is washed away by a tide of facts.

    Jejune name calling.

    It's simple. We love Europe & Europeans but hate the EU.

    Can't explain any simpler for you.

  • rate this

    Comment number 73.

    67 ciconia

    "The issue is not the relationship between the euro and other currencies, it's the adoption of the euro by ill suited economies"

    All the world's major currencies are dealing with people of vastly different wealth. Compare, say, Vermont with Mississipi or indeed the relatively poor areas in Britain like the Highlands, Cornwall, Wales etc with London and the Home counties.

  • rate this

    Comment number 72.

    Attention private sector taxpayers. What's happening in Italy and Greece is a consequence of the monstrous fraud that a state's public sector operates. It pays itself more than you. It gives itself pensions you can only dream of. It grants itself perks and privileges beyond measure. And it borrows recklessly in your name to fund it all. Eventually you must pay their debts. Their greed ruins you.

  • rate this

    Comment number 71.

    Is certainly trough we still have problem in part of the EU partly create by the lack of political leadership and corruption bat the main reason is not the EU or the Euro the opposite is the trough we still not have a UNITED EUROPE NATION until we forget the various country which form the EU and we have one Nation all of us will continues to suffer in this global world.

  • rate this

    Comment number 70.

    49 QOT
    ".. give Communism a second chance --or Fascism will take it..any views" ?
    I dont much fancy either !
    When people are in despair suicide is an option a few take, others want to fight back, of those some will take to the streets but most use their vote. The famous 'protest vote'.
    EU, and national, politicians make light of the 'protest vote' even though it counts the same as any other vote.

  • rate this

    Comment number 69.

    im not saying a type of collaberation with europe isnt a bad thing ...but this present arrangement is hopeless....the uk would be better served by a joining up of northern euro countries.we can still trade but not have these hopeless rules that the present EU saddle us with. this basically is what UKIP are saying and it makes sense.


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