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Europe's leaders face post-holiday blues

Tuesday - 8/21/2012, 8:12am  ET

By BARRY HATTON
Associated Press

(AP) - After their holidays spent soaking up the August sun, Europe's political leaders are bracing themselves for storm clouds this fall.

The latest economic figures show that Europe is edging closer to recession, dragged down by the crippling debt problems of the 17 countries that use the euro.

These debt troubles have tormented the eurozone for close to three years and so far have defied leaders' efforts to fix them. And the longer they take to resolve, the bigger they get.

Leaders from France, Germany and Greece all meet later on this week in the latest round of shuttle diplomacy to attempt to put a lid on the eurozone's debt crisis.

Six eurozone countries _ Greece, Spain, Italy, Cyprus, Portugal and Malta _ are already in recession and others look feeble.

Europe's stumbling economy is hurting recovery in other parts of the world. The European Union recorded a gross domestic product last year of $15.5 trillion _ slightly more than the U.S.'s output. It is also a major source of sales for the world's leading companies. Any further economic problems would be felt in order books back in the U.S. and China.

Forty percent of McDonald's global revenue comes from Europe _ more than it generates in the U.S. The company reported a 0.6 percent slump in meals served in Europe last month. Ford Motor Co. warned last week that auto industry sales in the region through July were the lowest in 17 years.

The eurozone has already provided billion in loans and financial aid to keep Greece, Ireland and Portugal from defaulting on their debts. And now markets are worried that recession-hit Spain and Italy could soon be asking for assistance. Meanwhile, public anger over austerity measures and unemployment is spreading, and a key court ruling on the eurozone's crucial new bailout fund is due in Germany.

"September is going to be extremely busy," said Antonio Barroso, an analyst with the Eurasia Group political risk consultancy. "The potential for negative news is definitely there."

Here are some of the key events anticipated in the coming months that could alter the temperature and the tempo of Europe's financial crisis:

GREECE

Greece is in its fifth year of recession. The economy is likely to contract another 7 percent this year, and unemployment is nearing 24 percent. Debt inspectors from the organizations that oversee Greece's bailout program _ the "troika" of the International Monetary Fund, European Union and European Central Bank _ are set to return to Athens in early September to finalize yet another round of austerity measures.

Greece has been kept afloat by bailouts from its European partners and the IMF since May 2010, after it found it impossible to pay off its debts on its own. The rescue loans came in exchange for harsh austerity measures and reforms to its public sector. The country's debt stands at more than (EURO)300 billion ($369 billion), and the economy is struggling through a fifth year of recession with unemployment at above 23 percent.

But the cash lifeline has been disrupted by months of political instability_ that were resolved, for now, after two national elections _ during which the austerity and reform process lagged severely. As a result, the next (EURO)31 billion installment, if approved by bailout creditors following a review of the country's finances, has been delayed until next month at the earliest.

To qualify for that payment, Greece's eight-week-old coalition government must identify by the end of the month a new round of budget cuts worth (EURO)11.5 billion for 2013 and 2014.

Officials have said this is likely to include additional cuts in pensions and the initial sums paid out on retirement. Greece has also promised to reduce its 750,000-strong workforce in the civil service and the broader public sector by 150,000 by the end of 2015.

Many in the country are worried that the continuing decline in living standards could result in a repeat of violent streets protests witnessed in recent years.

If the troika finds Greece is not sticking to the terms of the bailout agreement, it could hold off vital funding, forcing the country into a chaotic default on its debt. This could push the country out of the eurozone, further destabilizing the region.

Europe's finance ministers meet Sept. 14 and 15 in Cyprus to discuss Greece and its prospects.

SPAIN

The first batches of a loan worth up to (EURO)100 billion for Spain's debt-stressed banks are due to be sent to Madrid from the other 16 eurozone countries in the coming weeks, bringing some short-term relief for a country battling to avoid a full-blown bailout.

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