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Europe Facing 'Moderate Recession' in Year's First Half

European Economic and Monetary Affairs Commissioner Olli Rehn addresses a news conference at the EU Commission headquarters in Brussels, January 11, 2012.

Europe's economics commissioner says the continent is facing a "moderate recession" in the first half of 2012, with an economic recovery not likely before the last six months of the year.

The European Union's economics chief, Olli Rehn, made the prediction Tuesday as Europe's finance ministers concluded two days of talks in Brussels. He said financial markets recently have modestly improved their opinion of the eurozone, the 17-nation European bloc that uses the common euro currency, but remain negative in their overall outlook.

The finance ministers focused on Greece's perilous financial state and the difficulties the Athens government is having concluding negotiations with its private creditors to cut about $130 billion in debt Greece owes them.

Rehn said an agreement between Greece and the large financial institutions "is very near." The financial institutions said they would not voluntarily accept more than a 50 percent cut, however, in the face value of the debt Greece owes them, and a dispute has arisen over what interest rate Greece would pay on the remaining debt.

The finance ministers demanded that the banks impose no more than a 3.5 percent rate, in order to limit Greece's borrowing costs and allow it to regain its economic footing over the coming years. But the banks have been pressing for a 4 percent rate, which the European leaders fear will reduce Greece's chance to cut its deficit spending to a reasonable level.

At the same time, the finance chiefs demanded that Greek lawmakers make written commitments to impose new and unpopular austerity measures. Greece is seeking approval of a new $168-billion bailout, its second in two years, to avoid a default in March.

But European leaders say they will not approve the financial aid without the overall agreement on debt relief and spending cuts.

Some information for this report was provided by AFP.