Eurozone could see recession

BRUSSELS – The European Union warned Thursday that the 17-country eurozone could slip into “a deep and prolonged 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 in the spring.

“This forecast is in fact the last wake-up call,” the EU’s Monetary Affairs Olli Rehn warned. “Growth has stalled in Europe, and there is a risk of a new recession.”

The warning is the first acknowledgment of the possibility of a double-dip recession in Europe, a development that could hit the global economy hard. The Commission said “a deep and prolonged recession complemented by continued market turmoil cannot be excluded,” given the uncertainty over whether countries will implement spending cuts and reforms.

The sharp cut in the forecast comes as the eurozone’s debt crisis has spread to Italy, the single currency bloc’s third-largest economy. The interest rate on Italy’s 10-year bonds has reached the 7 percent level that eventually forced Greece, Portugal and Ireland to request multibillion euro bailouts.

The Commission’s half-yearly predictions also warned that unemployment in the EU would be stuck at 9.5 percent for the foreseeable future. That’s even higher than the 9 percent rate in the U.S.

“While jobs are increasing in some member states, no real improvement is forecast in the unemployment situation in the EU as a whole,” Rehn said.