Economic angst envelops eurozone

Greece may be the epicentre of the financial crisis afflicting Europe, but severe tremors are being felt across most of the eurozone as one country after another comes to terms with the need for far-reaching economies. In what has been called a new era of austerity, Europeans have been warned that they will have to work longer, pay more taxes, accept reduced public services and benefits and face continuing insecurity in their employment.

Little more than a year after the Irish Republic, Spain and Portugal were commonly described as the sick men of Europe, few nations are now considered exempt from the consequences of decades of self-indulgence. In Greece, strikes and violent protests greeted the range of emergency measures introduced as the price of the ?110 billion (Dh500bn) European Union and International Monetary Fund bailout after the country's debt rating was reduced to "junk" status. The strings attached to the rescue package leave Greeks facing significantly reduced living standards for years to come.

In Spain, too, trade unions have warned of an explosion of anger against government plans to deal with colossal national debts and a general strike is threatened for September. The Spanish prime minister, Jose Luis Rodriguez Zapatero, has imposed spending cuts, lower civil service pay and labour reforms in the hope of restoring confidence in Spanish finances and easing concern that the country could be forced to seek Greece-style aid. Italy and Portugal are also having to embark on serious belt-tightening.

In France, Nicolas Sarkozy was elected president on a programme of reforms in 2007, but is experiencing the same problems as predecessors in tackling waste and overspending. Workers are already taking to the streets to demonstrate against relatively moderate plans to raise the retirement age from 60 to 62 in 2018. Even Germany, which has the eurozone's biggest economy and is generally regarded as a model of economic prudence and efficiency, has announced that a four-year round of cuts totalling Dh364bn will start next year.

The German chancellor, Angela Merkel, told reporters the country was in serious difficulties and had to take stringent steps to protect its financial future. Planned cuts will affect social-security allowances and military expenditure. There are no plans to increase income or value-added taxes, but air passengers and nuclear-power companies face new levies. Economists are divided on how effective the proposed economies will be in meeting the challenges facing Europe.

Unemployment in the eurozone has already reached record levels, a little more than 10 per cent, and more people are bound to lose their jobs in the coming period of austerity. In a recent survey by the London-based Daily Telegraph, nearly half the 25 UK analysts questioned doubted that the euro would survive in its current form. Few observers seriously doubt that Europe's growing sovereign debt problem was in need of painful surgery.

But it feared that the scale of the cuts, though necessary to calm volatile markets, may trigger recessionary pressures making recovery hazardous. The Forex Live news service has reported recent comments by Christian Noyer, the governor of the Bank of France and a member of the European central bank's governing council, in which he recommended that European countries should tackle their deficits at different speeds.

Greece, he said during a televised debate, was an example of a country that had no choice "but to impose drastic remedies". But he added: "If we adopted very violent austerity programmes everywhere in Europe at the same time, there would be a very negative effect on growth. If everyone did that, it would trigger a recession." [e-mail]