Finance ministers from the eurozone are meeting today to consider increasing the size of their rescue fund as part of a package of measures to tackle the continuing debt crisis writes Vanessa Mock in Brussels.
Many EU countries have embarked on unprecedented belt-tightening programmes in a bid to convince jittery investors that their finance are under control. The leaders of Spain and Portugal are racing against the markets to push through unpopular austerity measures. In Greece, the first country to be thrown a lifeline last May, austerity measures sparked violent riots and months of strikes.
Fears have spread beyond the uncharitably named PIGS – Portugal, Italy, Greece and Spain. The vultures are now also circling over Belgium, where the problem of its large debt is compounded by fears that the country could ultimately split if no government is formed.
The main worry is that if Portugal follows Ireland in asking for financial help, the eurozone may not have enough cash at the ready to support countries like Spain or Belgium. Such a doomsday scenario would plunder the current €750bn fund, created jointly by the eurozone and the IMF.
Spain & Portugal: Gentle approach pays dividends
By Dale Fuchs in Madrid
Spain's socialist Prime Minister José Luis Rodríguez Zapatero trotted out a barrage of austerity measures only after EU prodding and repeated spurts of bond market jitters that inflated the country's borrowing costs.
After denying the severity of the economic crisis for years, Mr Rodríguez Zapatero finally gritted his teeth last May and introduced a range of belt tightening measures. But by moving slowly and gently, Mr Rodríguez Zapatero did manage to avert Greek-style episodes of social unrest.
Austerity measures have helped neighbouring Portugal fend off an EU bailout, at least so far.
The Socialist-led government of Jose Socrates pushed through an emergency austerity package late last year that cut pay for public workers by 5 per cent, raised taxes, froze pensions and reduced welfare benefits. The unpopular plan sparked the country's first general strike since 1988, and did nothing to boost Mr Socrates' popularity. He lags in the polls and may be forced to call early elections.
France: Cuts so far are an 'optical illusion'
By John Lichfield in Paris
The French word for austerity – "la rigeur" – is a word that President Nicolas Sarkozy refuses to use. Despite the president's reputation as a bold state reformer, his government has so far avoided the kind of radical cuts in public spending seen in Britain and other EU countries.
With a total state debt of €1,600bn and a forecast budget deficit for 2010 of 7.7 per cent of GDP (compared to the official Euroland ceiling of 3 per cent), some economists warn that France could become a target for market bullying.
The increase in the official retirement age last year was designed to convince markets that Mr Sarkozy was a reformer without taking an axe to state spending. Officially, there will be €57bn in "cuts" this year to reduce the annual deficit in public spending to 6 per cent of GDP or €91.6bn.
In reality, most French politicians admit that this year's cuts are largely an optical illusion. Four-fifths of the cuts are the closure of spending programmes introduced to boost the economy after the 2008 recession. The real test will come this autumn when – six months before the election – a budget for 2012 is due to reduce the public deficit to 4.6 per cent of GDP, roughly by another €60bn.
Germany: Dire warnings exaggerated
By Tony Paterson in Berlin
Just six months ago, Chancellor Angela Merkel's coalition government unveiled what was billed as Germany's biggest and most wide-ranging austerity package since the Second World War.
The €80bn savings programme, which came hard on the heels of the Greek euro crisis, was designed to "set an example" of prudent housekeeping to the rest of Europe.
The measures have included the axing of 10,000 public sector jobs and extensive cuts in municipal government and welfare spending. These have resulted in a surge in court cases involving benefit claimants who maintain they are being chronically underfunded.
When the austerity measures were announced they were accompanied by claims that the country risked being dragged back into a Weimar-style recession. They also brought charges from the US administration that the Merkel government was helping to stifling world growth.
Yet economic data released last week has shown these fears to be largely unfounded. Germany is enjoying its strongest growth since it was reunified in 1990. Exports are booming, particularly in the car industry. Unemployment is dropping and interest rates remain low.
Experts say last year's record 3.6 growth rate will slow slightly in 2011, but they are confident that the country's economic climate will continue to stabilise.
Whether the German boom will improve support for Ms Merkel's beleaguered conservative-liberal coalition remains open. Her alliance faces seven key regional elections this year which could determine its future.
Ireland: Few families have escaped cutbacks
By David McKittrick, Ireland Correspondent
The intervention of the EU, together with that of the IMF, in the heart of Ireland's finances has gone remarkably smoothly, leaving surprisingly little sense of resentment at the government's loss of authority.
Some thought the arrival of the international money people would be regarded as an affront, but in fact the public reaction has been closer to resignation and indeed relief than hostility.
December's budget was a particularly tough one, driving home the message that years of austerity lie ahead. Those in work have already been hit by extra taxes, a drop in benefits and other measures which will hit their pockets. Property values continue to fall.
Few if any families and individuals have escaped financially, while the worst-hit are the unemployed, whose benefits have been cut while jobs are scarce.
Belgium: Failing to get to grips with debt
By Vanessa Mock in Brussels
Market vultures have been circling over Belgium in recent weeks as the political deadlock in the country has entered a record-breaking seventh month. Belgians have so far not felt the squeeze of tightened belts but only because they have not had a government.
The worry is that without a government, the country has no hope of getting to grips with its debt pile which, at 97.2 per cent of GDP, is the third highest in the EU. Aware of the panic, the country's long-suffering king, Albert II, took the exceptional step last week of telling the caretaker government to draw up a tough budget for 2011.
Caretaker Prime Minister Yves Leterme has promised to start phasing in austerity measures if there is still no new government in place by the middle of February. His job will be to cut costs across the board to reduce Belgium's deficit as well as its debt. But investors are also asking for major structural reforms to the state, a task which no caretaker cabinet can handle.
Belgium's government crisis has now become the longest in modern European history, with Dutch-speakers and Francophones at loggerheads over how to move towards more autonomy.
Greece: General strikes and social unrest
By Nathalie Savaricas in Athens
Many Greeks have been feeling the pinch of the recession since the ruling socialists implemented tough austerity measures in May in exchange for an EU-IMF €110bn (£92bn) bailout.
The socialist government cut pensions and wages, and increased taxes and retirement ages in exchange for the loan that saved the country from bankruptcy. Already among the lowest-paid workers in Europe, austerity measures have hit the Greeks hard, sparking social unrest, pictured, and regular rolling strikes. Scores of businesses have shut and more than 200,000 have lost their jobs in the past year.
But the socialist government appears to be weathering the storm. Two polls conducted last week show that while ruling the administration's popularity has slipped, the government maintains its lead over the main opposition party, the conservative New Democracy.
But the government has pledged more austerity measures this year, prompting unions to announce a general strike next month. It looks as though the put upon Greeks can look forward to another year of woe.
Italy: Warning that crisis isn’t over
By Michael Day in Milan
As you might imagine in a country with the scandal-ridden media mogul Silvio Berlusconi as its perpetual Prime Minister, Italy, the eurozone's third-biggest economy, is something of a special case.
It is frequently lumped in with Spain, Ireland and thebasket cases Greece and Portugal as one of the PIIGS. And it's easy to see why, with its huge overall debt, unenviable corruption levels and sluggish growth.
It was the Italian Finance Minister, Giulio Tremonti, who last week warned that the economic crisis in Europe was not yet over. However, Mr Tremonti has won general backing for implementing savings worth €24bn. The most obvious reaction to his austerity budget has been violent student protests. But these were motivated as much by frustration at the country's political stagnation as they were by fears of economic hardship.
Unlike the UK, Italy has a relatively low annual deficit, so its arrears are increasing more slowly. And with its market-leading, high-end clothes, furniture, cars and textiles it can rightly claim to be a major economy manufacturing things that people, particularly in big emerging markets, want to buy.