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By Jason Groves | Mail Online | Jun. 15, 2010
Democracy could ‘collapse’ in Greece, Spain and Portugal unless urgent action is taken to tackle the debt crisis, the head of the European Commission has warned.
In an extraordinary briefing to trade union chiefs last week, Commission President Jose Manuel Barroso set out an ‘apocalyptic’ vision in which crisis-hit countries in southern Europe could fall victim to military coups or popular uprisings as interest rates soar and public services collapse because their governments run out of money.
The stark warning came as it emerged that EU chiefs have begun work on an emergency bailout package for Spain which is likely to run into hundreds of billions of pounds.
Crisis point: Demonstrators protest cuts announced by the Government in Malaga last week in an echo of the Greek crisis
A £650 billion bailout for Greece has already been agreed.
John Monks, former head of the TUC, said he had been ‘shocked’ by the severity of the warning from Mr Barroso, who is a former prime minister of Portugal.
Mr Monks, now head of the European TUC, said: ‘I had a discussion with Barroso last Friday about what can be done for Greece, Spain, Portugal and the rest and his message was blunt: “Look, if they do not carry out these austerity packages, these countries could virtually disappear in the way that we know them as democracies. They've got no choice, this is it.”
‘He's very, very worried. He shocked us with an apocalyptic vision of democracies in Europe collapsing because of the state of indebtedness.’
Greece, Spain and Portugal, which only became democracies in the 1970s, are all facing dire problems with their public finances. All three countries have a history of military coups.
Greece has been rocked by a series of national strikes and riots this year following the announcement of swingeing cuts to public spending designed to curb Britain’s deficit.
Spain and Portugal have also announced austerity measures in recent weeks amid growing signs that the international markets are increasingly worried they could default on their debts.
Dictatorships: An end to democracy in Europe could see a return of figures ruling dictatorships. General Franco was dictator of Spain until 1975; Georgios Papadopoulos led a military junta until 1973; and Antonio de Oliveira Salazar ruled as Portugese president until 1968
Other EU countries seeing public protests over austerity plans include Hungary, Italy and Romania, where public sector pay is to be slashed by 25 per cent.
Deputy Prime Minister Nick Clegg, who visited Madrid last week, said the situation in Spain should serve as a warning to Britain of the perils of failing to tackle the deficit quickly.
He said the collapse of confidence in Spain had seen interest rates soar, adding: ‘As the nation with the highest deficit in Europe in 2010, we simply cannot afford to let that happen to us too.’
Mr Barroso’s warning lays bare the concern at the highest level in Brussels that the economic crisis could lead to the collapse of not only the beleaguered euro, but the EU itself, along with a string of fragile democracies.
But it risks infuriating governments in southern Europe which are already struggling to contain public anger as they drive through tax rises and spending cuts in a bid to avoid disaster.
Mr Monks yesterday warned that the new austerity measures themselves could take the continent ‘back to the 1930s’.
In an interview with the Brussels-based magazine EU Observer he said: ‘This is extremely dangerous.
'This is 1931, we're heading back to the 1930s, with the Great Depression and we ended up with militarist dictatorship.
‘I'm not saying we're there yet, but it's potentially very serious, not just economically, but politically as well.’
Mr Monks said union barons across Europe were planning a co-ordinated ‘day of action’ against the cuts on 29 September, involving national strikes and protests.
David Cameron will travel to Brussels on Thursday for his first summit of EU leaders since the election.
Leaders are expected to thrash out a rescue package for Spain’s teetering economy. Spain is expected to ask for an initial guarantee of at least £100 billion, although this figure could rise sharply if the crisis deepens.
News of the behind-the-scenes scramble in Brussels spells bad news for the British economy as many of our major banks have loaned Spain vast sums of money in recent years.
Germany’s authoritative Frankfurter Allgemeine Newspaper reported that Spain is poised to ask for multi-billion pound credits.
Mr Barroso and Jean-Claude Trichet of the European Central Bank are united on the need for a rescue plan.
The looming bankruptcy of Spain, one of the foremost economies in Europe, poses far more of a threat to European unity and the euro project than Greece.
Greece contributes 2.5 percent of GDP to Europe, Spain nearly 12 percent.
Yesterday’s report quoted German government sources saying: ‘We will lead discussions this week in Brussels concerning the crisis. It has intensified to the point that the states do not want to wait until the EU summit on Thursday in Brussels.”’
At the end of last month the credit rating agency Fitch downgraded Spain, triggering sharp falls on stock markets.
On Friday the administration in Madrid continued to insist no rescue package was necessary. But Greece said the same thing before it came close to disaster.
Yesterday the European Commission and the statistics authority Eurostat met to consider Spain‘s plight as many EU countries consider the austerity package proposed by the Madrid administration insufficient to deal with the country‘s problems.