Eurozone crisis comes to boil with Greece austerity vote
(BRUSSELS) - The eurozone debt crisis came to the boil Wednesday as the EU forecast an even sharper economic slowdown than expected and as Greece votes on new austerity measures in return for urgently needed bailout funds.
The European Commission said it expected 2013 eurozone growth of just 0.1 percent instead of 1.0 percent as the debt crisis saps confidence and sends the jobless rate soaring, a deadly combination threatening Spain and weaker member states.
Spain faces huge problems to stabilise its finances, the new data showed, with the 2014 public deficit put at 6.4 percent of gross domestic product, way above the 2.8 percent target agreed earlier this year and the EU limit of 3.0 percent.
Even worse, the 2014 deficit -- the shortfall between government spending and revenue -- is worse than the 6.0 percent estimate for 2013 indicating Madrid is veering further off course, with its economy slowing and unemployment tipped to soar to 26.6 percent next year.
France is expected to eke out meagre growth of 0.2 percent this year and 0.4 percent next, while Italy will see its economy shrink 2.3 percent and 0.5 percent before returning to growth in 2014.
Germany, Europe's strongest economy, will manage growth of 0.8 percent this year and next before picking up to 2.0 percent in 2014, but this is still well short of earlier Commission estimates.
German Chancellor Angela Merkel, Europe's paymaster, meanwhile visits Brussels to address European lawmakers on how the EU's economic and monetary union can be made to work better. She said at the weekend it would take another five years to resolve the debt crisis.
The chancellor insists that much closer EU fiscal and budget coordination is needed to prevent any repeat of the spending and debt blow-out which forced Greece, Ireland and Portugal into massive international debt bailouts.
The German hard line does not go down well in Greece however, where unemployment has soared to 24 percent, with the economy stuck in recession as stinging austerity measures, dampening demand, appear to make problems worse.
Greek lawmakers vote Wednesday on a new package of spending cuts and tax hikes agreed by the government to unlock international aid and stave off bankruptcy but the measures have already sparked an angry response on the streets.
Prime Minister Antonis Samaras, who took office in June, needs the measures passed to obtain 31.5 billion euros from Greece's international creditors -- the so-called "troika" of the European Union, International Monetary Fund and the European Central Bank.
Without the new funding, Samaras has warned that Greece risks running out of money on November 16, when a debt repayment falls due while the 17 Eurozone finance ministers are due to meet next Monday with the issue high on the agenda.
Cyprus meanwhile announced Wednesday that troika officials would arrive Thursday to complete a draft agreement to rescue the island's recession-hit economy and Greece-exposed banks.
Cyprus applied for a full EU bailout in June after its biggest lenders, Cyprus Popular Bank and Bank of Cyprus, could not meet new capital reserve limits because of huge losses due to their exposure to bailed-out Greece.
After Brussels, Merkel will meet British Premier David Cameron in London to tackle deep differences over the next seven-year EU budget.
Cameron last week embarrassingly lost a parliamentary vote on the EU budget, raising questions about Britain's future role in the bloc.