Perilous Times
1 January 2012 Last updated at 04:41 ET
European leaders have warned of a difficult year
ahead, as many economists predict recession in 2012.
BBC - 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 government 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".
“ 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” - Paul Mason
Economics editor, Newsnight
"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 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."
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.