BRUSSELS — The European Union has warned that the 17-country eurozone could slip back into recession next year as the debt crisis shows alarming signs of spinning out of control.
The EU's economic watchdog, the European Commission, said its central forecast is that the eurozone will grow by only a paltry 0.5 percent in 2012. That's way down on the 1.8 percent prediction it made as recently as September.
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.
"Growth has stalled in Europe, and there is a risk of a new recession," The EU's Monetary Affairs Olli Rehn said in a statement. "While jobs are increasing in some member states, no real improvement is forecast in the unemployment situation in the EU as a whole."
EU unemployment will be stuck at 9.5 percent for the foreseeable future, the Commission warned.
The report also contained some worrying figures for some individual member states.
Italy is unlikely to fulfill its promise of balancing its budget by 2013 if recently promised austerity and reform measures aren't implemented. According to the forecast, which does not take into account the most recent promises, Italy will still run a deficit of 1.2 percent, with debt close to 119 percent of economic output.
Berlusconi has come under so much pressure that he promised to resign as soon as the new budget has been passed. The Commission this weeks started a verification mission in Rome to check on Italy's efforts, with the International Monetary Fund to follow soon.
Rehn warned that if several states don't soon implement additional measures to get their spending budgets control, he will start using new powers to sanction overspenders set to come into force in the coming weeks.
"What we need now is unwavering implementation," Rehn said. "On my part, I will start using the new rules of economic governance from day one."
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