Austerity Measures May Save Greece, But Will They Topple Europe’s Economy?

The euro, hammered on fears that Greece’s debt debacle will spread to Portugal and Spain, rallied 0.7% vs. the dollar Wednesday. Analysts say the European Union is likely to provide aid if Greece follows through on spending cuts and tax hikes, but a tense political process may drag on. Greek Prime Minister George Papandreou is slated to meet German Chancellor Angela Merkel in Berlin on Friday.

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But even if global markets settle, tough austerity measures in Greece, Italy, Portugal, Spain and Ireland will take a toll on Europe’s already-anemic economic growth.

Euro zone economies will grow about 1% in 2010 after falling 4% last year, analysts say. GDP rose just 0.4% annualized in Q4, a far cry from the America’s admittedly puffed-up 5.9%. Unemployment in Spain hit 18.8% in February.

With domestic demand lagging through Europe, a weaker euro may help the region’s exports, analysts say. But ballooning budget deficits may become a near-term hurdle. [Read the full article]

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