Europe Facing Crucial Week in Debt Crisis

Posted October 17th, 2011 at 9:30 am (UTC-5)
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Europe is facing a crucial week in solving its two-year debt crisis, before its leaders head to a summit in Brussels on Sunday.

Greek Prime Minister George Papandreou declared Monday that it is the “most critical week” for his debt-ridden country and the other 16 nations on the continent that use the euro currency. He said the next few days “will determine the fate of the eurozone.”

Mr. Papandreou said Greek lawmakers must “show a sense of unity and responsibility” and approve new austerity measures set for votes in Parliament on Wednesday and Thursday.

Those are the same days that Greek workers are calling a general strike in protest of the government’s budget-cutting, work stoppages that threaten to shut down government services and such key private businesses as gas stations and bakeries. Work stoppages on Monday halted ferries to Greek islands and have left massive piles of trash on Athens streets.

Germany, with Europe’s most potent economy, sought to tamp down expectations that the debt crisis will be solved this coming weekend. A spokesman for Chancellor Angela Merkel said that dreams that everything can be settled “by next Monday cannot be fulfilled.”

European leaders are considering a range of proposals to resolve the continent’s sweeping debt crisis and calm international financial markets worried about an eventual Greek default. The continent’s banks holding Greek debt could be forced to take losses of up to 50 percent on their securities, easing Greece’s debt burden. They may also be forced to increase the size of their cash reserves to cover possible losses. The eurozone leaders could also attempt to increase the size of its bailout fund beyond the $596 billion approved a few days ago.

Greece’s international creditors have approved the country’s latest austerity plan that would sharply cut the salaries of 30,000 civil servants and eventually eliminate their jobs. If Parliament votes for it this week, Greece is likely to secure another portion of its $159 billion bailout from last year and avert a default on its financial obligations in November.

But the austerity measure, on top of earlier budget cutting and tax increases, has angered the Greek masses, leading to repeated worker strikes that have cut government services and shut popular archaeological tourist sites.