It has been a tough year for the European Union (EU), which is mired in a sovereign debt crisis while struggling to emerge from the global financial crisis. As a result, the 27-nation bloc's fragile economic recovery is in question.

The year-long drama, which has yet to reach its final act, posed the most grave challenge to the euro since the single currency was created in 1999. Many expect the EU economy to feel the chill for years to come.

NO END IN SIGHT

Alarm was raised over the EU at the very beginning of the year when Greece found it increasingly difficult to borrow from the markets. Investors were wary of the country's ability to pay back its national debts due to its deteriorating public finances, the worst in the 16-nation eurozone.

Following months of internal wrangling, the EU, together with the International Monetary Fund (IMF), activated an unprecedented 110-billion-euro (145-billion-U.S. dollar) rescue package for Greece in May after the country's borrowing costs reached unbearable levels.

In a desperate bid to prevent contagion risk from the Greek debt crisis, the EU and the IMF also set up a 750-billion-euro (986-billion-dollar) mechanism for other eurozone members which may follow Greece.

The two costly efforts did help stabilize the markets, but their effect failed to last long. Only half a year later, Ireland became the second victim of the debt crisis, and was forced to ask for a bailout in November.

By year-end, an end to the crisis appears nowhere in sight, with Portugal and Spain rumored to be the next to hold out the begging bowl. Borrowing costs of the two southern eurozone countries have risen significantly after Ireland reignited concerns that the domino effect of the debt crisis was growing.

Analysts warned the crisis might intensify next year when eurozone countries have to refinance more debt than at any time since the launch of the common currency.

Eurozone countries would have to refinance or repay 560 billion euros (736 billion dollars) in 2011, a record amount in the euro's 11-year history and 45 billion euros (59 billion dollars) more than in 2010, according to Italian bank UniCredit.

Portugal, the next weakest eurozone member, has to refinance or repay 20 billion euros (26 billion dollars) of debt by the middle of next year.

GROWTH RISKS

So far, economic recovery in the EU has generally not been interrupted by the debt crisis, but risks are rising as the crisis is taking its toll on the real economy.

The combined economy of the 27 EU countries was expected to grow by 1.8 percent this year, ending a sharp contraction of 4.2 percent last year, according to a forecast by the European Commission last month.

The recovery was even faster than previously anticipated, thanks to strong performance in the first half of this year.

"There were two major factors that helped the EU economy rebound in the first half of this year, namely strong external demand for EU exports from countries like China and the positive effect of fiscal stimulus measures taken by EU countries in response to the economic crisis," Xiong Hou, an expert in European economy at the Chinese Academy of Social Sciences, said.

But the EU economic recovery started to lose steam in the second half of this year, mainly due to the debt crisis, less favorable external demand and record-high unemployment.

As the debt crisis could flare up again, financial markets remained under stress. Banks were again tightening credits for fear of possible losses in holding sovereign debts of the crisis-hit eurozone countries, which would threaten economic recovery.

In response to the debt crisis, EU countries acted resolutely to end stimulus measures and turn to fiscal consolidation. By reducing public spending and raising taxes, EU governments hoped to cut their fiscal deficits and regain investors' confidence.

All these austerity measures might undermine economic recovery, which remains fragile, analysts warned.

Amid a softening global environment, the growth of EU exports, a major driver of economic recovery so far, was expected to slow down next year. With the jobless rate remaining at record-high levels, private consumption would continue to be dampened.

The European Commission said the EU's economic growth would slow to 1.7 percent next year, and warned risks to the growth outlook are not negligible, with uncertainty still high.

Debt-laden countries like Greece and Ireland had to go through a longer period of economic pains. Recovery in those countries would be subdued for several years, and they would continue to be cause for anxiety in the markets.

People's Daily