As the debt crisis shows alarming signs of spinning out of control, the European Union has warned that the 17-country eurozone could slip back into recession next year.
The European Commission, economic watchdog of the European Union, said its central forecast is that the eurozone will grow by only a paltry 0.5 percent in 2012.
The sharp cut in the forecast comes as the eurozone’s debt crisis has spread alarmingly to Italy, the single currency bloc’s third-largest economy. The interest rate on Italy’s 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.
“This forecast is in fact the last wake-up call,” the EU’s Monetary Affairs Olli Rehn warned. “Growth has stalled in Europe, and there is a risk of a new recession.”