2 Jan 2012

Leaders warn of grim year ahead in Europe

6:01 am on 2 January 2012

European leaders have warned of a difficult year ahead, as many economists predict recession in 2012.

German Chancellor Angela Merkel says Europe is experiencing its most severe test in decades and the coming year will be more difficult than 2011, the BBC reports.

French president Nicolas Sarkozy says the crisis is not finished, while Italy's president Giorgio Napolitano is calling for more sacrifices to prevent the financial collapse of his country.

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 say they expect a return to recession in Europe in the first half of 2012.

Fears are focusing on a potential second credit crunch, triggered by the exposure of banks across Europe to Italy's huge debt.

In her televised address, Mrs Merkel said that despite Germany's relatively good economic situation, "next year will no doubt be more difficult than 2011".

"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."

Ms Merkel 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.

French President Nicolas Sarkozy said structural changes to the economy were needed in order to return to growth.

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.