From The New York Times:
"Europe’s leaders are bracing their nations for a turbulent year, with their beleaguered economies facing a threat on two fronts: widening deficits that force more borrowing but increasing austerity measures that put growth further out of reach.
"French President Nicolas Sarkozy will meet Jan. 9 with German Chancellor Angela Merkel to discuss a new fiscal treaty intended to impose stringent budget requirements on European Union nations.
"Saying that Europe was facing its 'harshest test in decades,' Chancellor Angela Merkel of Germany warned on New Year’s Eve that 'next year will no doubt be more difficult than 2011' — a marked change in tone from a year ago, when she praised Germans for 'mastering the crisis as no other nation.'
"The Continent’s economic outlook will take center stage on Jan. 9, when Mrs. Merkel and President Nicolas Sarkozy of France will discuss a new fiscal treaty intended to impose stringent budget requirements on European Union nations. Then on Jan. 30, European Union leaders will gather in Brussels to discuss ways to spur growth."
As David Dayen writes in Firedoglake:
"The problems are manifold. First, several deadlines for rolling over sovereign debt hit in the first quarter of the year, so bond prices will have a chance to fluctuate. Spain and Italy hold major borrowing auctions on January 12-13, for example, and France has one this week. Second, the signs of recession are apparent. Manufacturing in the Eurozone fell for a fifth straight month in December. Austerity measures that will cut against economic recovery are sure to be continued, and much of the rhetoric about a 'tough 2012' employed by European leaders will be used to justify the austerity. Even regional cutbacks should have a dampening effect on growth in some countries, like Spain.
"This is total folly, a recipe for higher deficits and more borrowing as the peripheral economies crumble. Ultimately it’s this miserable economic performance rather than some lack of will that will undo the Eurozone."