EU warns of recession in eurozone

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EU warns of recession in eurozone

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The European Union has warned that 17-country eurozone could slip back into recession next year.

10 November,2011 03:37 pm

It added tha the debt crisis shows alarming signs of spinning out of control.The EUs economic watchdog, the European Commission, said Thursday its central forecast is that the eurozone will grow by only a paltry 0.5 percent in 2012. Thats way down on the 1.8 percent prediction it in the spring.This forecast is in fact the last wake-up call, the EUs Monetary Affairs Olli Rehn warned. Growth has stalled in Europe, and there is a risk of a new recession.The sharp cut in the forecast comes as the eurozones debt crisis has spread alarmingly to Italy, the single currency blocs third-largest economy. The interest rate on Italys ten-year bonds has reached the same levels that forced Greece, Portugal and Ireland to request multibillion euro bailouts.Speculation that Premier Silvio Berlusconi will officially resign within days and be replaced by leading economist and former Commissioner Mario Monti has helped calm the market mood somewhat Thursday.Greece, meanwhile, remains in political chaos as party leaders have failed for several days to appoint an interim governments, putting the country in serious danger of defaulting on its massive debts before the end of the year.EU unemployment will be stuck at 9.5 percent for the foreseeable future, the Commission warned.While jobs are increasing in some member states, no real improvement is forecast in the unemployment situation in the EU as a whole, Rehn warned.The report also contained some worrying figures for some individual member states.Italy is unlikely to fulfill its promise of balancing its budget by 2013 if recently promised austerity and reform measures arent implemented. According to the forecast, which does not take into account the most recent promises, Italy will still run a deficit of 1.2 percent, with debt close to 119 percent of economic output.Berlusconi has come under so much pressure that he promised to resign as soon as the new budget has been passed. The Commission this weeks started a verification mission in Rome to check on Italys efforts, with the International Monetary Fund to follow soon.Rehn warned that if five states dont soon implement additional measures to get their budgets control, he will start using new powers to sanction overspenders set to come into force by mid-December.What we need now is unwavering implementation, Rehn said. On my part, I will start using the new rules of economic governance from day one.The countries that may face sanctions first are Belgium, Cyprus, Hungary, Malta and Poland, Rehn said.Under the new rules, sanctions for countries that break the caps on budget deficits and debt levels become more automatic, in an effort to prevent a worsening of the debt crisis.