The European Union has warned that the 17-country eurozone could slip back into recession next year as the debt crisis shows alarming signs of spinning out of control. The EU's economic watchdog, the European Commission, said Thursday 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 Commissioner Olli Rehn warned. “Growth has stalled in Europe, and there is a risk of a new recession.” The sharp cut in the forecast comes as the eurozone's debt crisis has spread alarmingly to Italy, the single currency bloc's third-largest economy. The interest rate on Italy's 10-year bonds has reached the same levels that forced Greece, Portugal and Ireland to request multibillion euro bailouts. Speculation Premier Silvio Berlusconi will be replaced by leading economist and former Commissioner Mario Monti once he officially resigns helped calm the market mood somewhat Thursday, but interest rates remain much higher than a week ago. Greece, meanwhile, was stuck in political chaos as party leaders have failed for several days to appoint an interim government, putting the country in serious danger of defaulting on its massive debts before the end of the year. EU unemployment will be stuck at 9.5 percent for the foreseeable future, the Commission warned. “While jobs are increasing in some member states, no real improvement is forecast in the unemployment situation in the EU as a whole,” Rehn warned. The report also contained some worrying figures for some individual member states. Italy is unlikely to fulfill its promise of balancing its budget by 2013 if recently promised austerity and reform measures aren't implemented.
