Europe's outlook darkens as Germany, UK make cuts

Europe’s economic picture darkened further Monday as Britain’s prime minister declared the nation’s finances to be worse than feared — requiring sacrifices that will affect “our very way of life” — and the euro slid further toward parity with the dollar.

From small EU nations like Hungary and Greece to big ones like Germany, which on Monday announced its own harsh austerity measures, the continent’s economic and fiscal crisis is showing no sign of letting up.

Germany, Europe’s economic powerhouse, promised a raft of spending cuts, vowing to “set an example” for heavily indebted Greece, Spain and Portugal, which are buckling under their debt loads and threaten to drag Europe’s currency union down with them.

With even an unprecedented multibillion-dollar rescue package failing to fully convince investors, European nations are scrambling to regain credibility and shore up market confidence by proving they can get their houses in order.

There is no doubt the cuts will be painful, and government leaders are preparing their citizens for the blow.

German Chancellor Angela Merkel says Germany needs to save $96 billion through 2014 by reducing handouts to parents, cutting 15,000 government jobs and delaying projects such as construction of a replica of a Prussian palace in Berlin.

British Prime Minister David Cameron warned in a speech of painful cutbacks that may shape the nation for an entire generation and are necessary because “the overall scale of the problem is even worse than we thought.”

“How we deal with these things will affect our economy, our society — indeed our whole way of life,” he said. “The decisions we make will affect every single person in our country.”

Cameron’s government will announce cuts at a June 22 emergency budget session, less than two months after coming to power at the head of the Conservative-Liberal Democrat coalition. On Monday, he remained vague on details of how his government plans to close its record deficit, which reached $221.5 billion, or 10.9 percent of economic output in the past fiscal year.

German and British efforts to close their budget deficits — or the yearly gap in government spending and revenue — come after Spain and Portugal were ordered to toughen austerity programs to keep them from needing a bailout like Greece.

Markets are still jittery despite EU nations’ pledge last month to rescue any of the region’s members with a “shock and awe” financial rescue package of $1 trillion that still is vague in its details.

The tensions in markets were evident in the euro’s slide to a series of four-year lows in recent days. The latest drop came after some Hungarian officials warned that their country is close to default — two years after it received a bailout from the EU and the IMF.

Hungary’s government tried to downplay the comments, but that failed to lift the euro much above the $1.19 level.

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