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Doubts mount as Europe struggles with next steps in euro crisis

European stocks as well as the euro dropped as optimism from last week's euro crisis summit yielded to tough questions about the EU's ability to avert fresh crises.

By Staff writer / December 14, 2011

A beggar sits in Via Montenapoleone shopping street in downtown Milan, Italy, Tuesday. Further signs of stress emerged Tuesday to indicate that Europe's most recent summit agreement to get the euro countries to bind their economies much closer together has only made limited progress in pulling the continent out of its debt crisis.

Luca Bruno/AP

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Paris

A new “fiscal union” treaty engineered by Germany to confront the euro crisis came with historic overtones last week. But whether the deal can staunch the immediate crisis facing Italy, Greece, and Spain is unclear as this week a slightly sour mood settled over the Continent.

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Governments including Ireland, Sweden, Hungary, the Czech Republic, Finland, and The Netherlands face questions about ceding budgetary sovereignty to the European Union. It is a week so far of strikes over austerity, lackluster growth forecasts, doubts about German Commerzbank, and a continued flirting by Italy with a prohibitive 7 percent borrowing rate figure for both five- and 10-year bonds. The euro today dropped to a near-one-year low on fears of ongoing instability, while London's FTSE-100 index lost more than 2 percent and France's CAC-40 index fell more than 3 percent.

"A lot of the excitement over the treaty has given way to other realities setting in … we are now in an ‘Oh, but…’ moment,” says Sony Kapoor of the Brussels think tank Re-Define. “[European leaders] had nothing to say about growth, and we are still staring at a deep recession that will worsen the debt crisis.”

As Europe’s third-largest economy, Italy faces huge ($220 billion) debt repayments by March and popular anger over austerity. New Prime Minister Mario Monti vows a new budget will quiet markets. (This week, Italy’s 950 members of parliament, whose salaries are double that of their German and British counterparts, debated pay cuts.)

French officials continue to brace for a possible loss of the nation’s AAA rating, even as Fitch Ratings forecast a “significant” downturn in the eurozone and Moody’s put eight Spanish banks on review for a downgrade.

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