European leaders issue grim forecasts on global economy


European leaders have warned of a difficult year ahead as the euro zone crisis continues and fears of recession grow.

As Europe marked the 10th anniversary of the introduction of euro notes and coins today, the message was stark.

In her New Year’s Eve message last night, German chancellor Angela Merkel said she expects turbulence in 2012 as she does "everything" to save the single currency and end Europe's sovereign debt crisis.

"The path to overcoming this won't be without setbacks but at the end of this path Europe will emerge stronger from the crisis than before," Dr Merkel said in a televised speech. "Today, you can trust that I will do everything to strengthen the euro. This will only succeed if Europe learns from the mistakes of the past. One of these is that a common currency can only be successful if we cooperate more than in the past in Europe."

In his message, French president Nicolas Sarkozy pledged to find ways to pull the economy out of stagnation in the four months left before a presidential election and vowed no further public spending cuts.

A grave Mr Sarkozy told the nation that the worst economic crisis since the second World War would continue to hurt households in 2012 and urged people to be stoical.

"I know that the lives of many of you, already tested by two difficult years, have been put to the test once more. You are ending the year more worried about yourselves and your children," Mr Sarkozy said in a 10-minute televised address.

"The only way to preserve our sovereignty, to control our destiny, is to choose ... the route of structural reforms rather than that of impulsive actions which only add to confusion and chaos without restoring confidence."

He said he was intent on agreeing reforms during talks with unions that could bolster employment and economic competitiveness. He also said he wanted taxes on imported goods to help fund France's cherished welfare state, currently financed by company and income taxes.

British prime minister David Cameron pledged to use the “global drama” of the Olympics and Queen’s Diamond Jubilee to help get Britain back on track. In his message, he admitted that 2012 would be “difficult” as the economy struggles and household finances are squeezed.

But he insisted his government understood the problems and would “do more” to help people through them. “Of course I know that there will be many people watching this who are worried about what else the year might bring,” Mr Cameron said.

“There are fears about jobs and paying the bills. The search for work has become difficult, particularly for young people. And rising prices have hit household budgets," he said. “I get that. We are taking action on both fronts. I know how difficult it will be to get through this. But I also know that we will.”

Mr Cameron said the government had “clear and strong plans” to bring down the deficit, which were giving “some protection from the worst of the debt storms now battering the euro zone”.

In Italy, president Giorgio Napolitano called for sacrifices. "No one today can shirk his or her responsibility to contribute to putting the public accounts on track and averting Italy's financial collapse," Mr Napolitano said in a 20-minute, nationally televised address last night.

"It's hard to regain credibility after having lost so much ground, and our bonds - despite some encouraging signs in recent days - remain under attack in the financial markets," the 86-year-old president said.

In his New Year's message, Greek prime minister Lucas Papademos said his government will confront a "difficult" 2012 and must continue efforts to stay in the euro.

Dr Merkel will meet Mr Sarkozy in Berlin on January 9th to discuss revisions to Europe's fiscal rulebook following decisions made at a summit on December 9th.

A final accord by euro leaders on the German-French proposals agreed at the summit is due in March.

The euro had a second consecutive annual loss against the dollar in 2011 for the first time in a decade as rising yields on the region's sovereign debt reflected speculation about defaults and stalling economic growth.

The 17-member currency fell below 100 yen for the first time since 2001 as the region's leaders bailed out Portugal, and Italy, with the world's third- largest bond market, had its worst year since at least 1992.