“Forecasters significantly underestimated the increase in unemployment and the decline in domestic demand associated with fiscal consolidation,” Blanchard and co-author Daniel Leigh, a fund economist, wrote in a paper on growth forecast errors. The authors essentially admit that they failed to consider important factors about how regions might react to austerity in times of financial crisis when they advised IMF austerity policy.

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“After five years of crisis, the global economy is weakening again. The risk of a major contraction cannot be ruled out,” OECD chief economist Pier Carlo Padoan said Tuesday in the organization’s semi-annual Economic Outlook report. The Paris-based OECD advises its 34-member governments on economic policy.

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And with surveys pointing to increasingly depressed conditions across the 17-member group at a time of austerity and high unemployment, the recession is forecast to deepen, and make the debt crisis - which has been calmer of late - even more difficult to handle.

Official figures Thursday showed that the eurozone contracted by 0.1 percent in the July to September period from the quarter before as economies including Germany and the Netherlands suffer from falling demand.

The decline reported by Eurostat, the EU's statistics office, was in line with market expectations and follows on from the 0.2 percent fall recorded in the second quarter. As a result, the eurozone is technically in recession, commonly defined as two straight quarters of falling output.

The eurozone economy shrank at annual rate of 0.2 percent during the July-September quarter, according to calculations by Capital Economics.

"The eurozone economy will continue its decline in Q4 and probably well into 2013 too - a good backdrop for another debt crisis," said Michael Taylor, an economist at Lombard Street Research.

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However, while austerity-hit countries such as Spain and Portugal saw a high turnout of striking workers, wealthier countries like Germany and Denmark experienced only piecemeal action.

To combat a three-year financial crisis over too much debt, governments across Europe have had to cut spending, pensions and benefits and raise taxes. As well as hitting income and living standards, these measures have also led to a decline in economic output and rapidly rising unemployment.

The 17 countries that use the euro are expected to fall into recession when official figures are released Thursday. Meanwhile, unemployment across the eurozone has reached a record 11.6 percent with countries like Spain and Greece hitting the 25 percent mark.

With no end in sight to the economic hardship, workers were trying to take a stand on Wednesday.

`'There is a social emergency in the south," said Bernadette Segol, Secretary General of the European Trade Union Confederation. `'All recognize that the policies carried out now are unfair and not working."

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The rate reported by Eurostat, the EU's statistics office, was up from an upwardly revised 11.5 percent in August. In total, 18.49 million people were out of work in the eurozone in September, up 146,000 on the previous month, the biggest increase in three months.

While the eurozone's unemployment rate has been rising steadily for the past year as the economy struggled with a financial crisis and government spending cuts, the United States has seen its equivalent rate fall to 7.8 percent. The latest U.S. figures are due Friday.

With the eurozone economy fading, most economists think unemployment will keep increasing over the coming months and that the deteriorating economic picture will soon spook investors again after a brief hiatus.

"Financial markets have calmed somewhat, but we expect that the deteriorating economy will soon enough lead to more crisis headlines," said Tim Ohlenburg, senior economist at the Centre for Economics and Business Research.

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The reasoning behind the award selection seems both transparent and politics-driven. Thorbjorn Jagland, the former Norwegian prime minister who is chairman of the panel awarding the prize, has openly expressed concern about the European Union's future in light of the debt crisis and attendant upheavals.

"There is a great danger ... We see already now an increase of extremism and nationalistic attitudes. There is a real danger that Europe will start disintegrating. Therefore, we should focus again on the fundamental aims of the organization,” said Jagland.

And indeed, following Jagland's logic, a number of commentators have praised the Nobel choice as an important boost and encouragement for the beleagured 27-nation bloc.

Heather Grabbe, director of the Open Society Institute in Brussels, told the BBC:

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The Norwegian prize committee said the EU was being honored Friday for six decades of contributions "to the advancement of peace and reconciliation, democracy and human rights in Europe."

"The stabilizing part played by the European Union has helped to transform a once-torn Europe from a continent of war to a continent of peace," Nobel committee chairman Thorbjoern Jagland said.

The EU grew out of the tremendous devastation of World War II, fueled by the conviction that ever-closer economic ties would make sure that century-old enemies never turned on each other again. It's now made up of 500 million people in 27 nations, with other nations lined up, waiting to join.

But the European project is now facing its greatest challenge yet -- a debt crisis that has stirred deep tensions between north and south, caused unemployment to soar, and prompted hundreds of thousands of its citizens to take to the streets protesting tax hikes and job cuts. The bloc's financial disarray is threatening the euro -- the common currency used by 17 of its members -- and even the structure of the union itself.

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Standard & Poor's late Wednesday cut its rating on Spain's debt by two notches to BBB-, just a step above junk status, or non-investment grade. By indicating that it's a riskier asset to hold, S&P's downgrade may make it more expensive for the Spanish government to borrow money as it might scare off some of its bond investors.

The agency said it was concerned by the deepening economic recession, which has seen unemployment rise to nearly one in four and fueled social discontent. It also noted that the government's hesitation in requesting a European financial lifeline was "potentially raising the risks to Spain's rating."

Though S&P's warning may nudge the Spanish government to make a bailout request sooner rather than later, rival agency Moody's has indicated it may cut its rating for Spain in the event of a bailout request.

"It would appear that when it comes to the rating Spain is a bit between a rock and a hard place," said Gary Jenkins, managing director of Swordfish Research.

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More than 7,000 police were on hand in Athens, cordoning off parks and other sections of city to keep demonstrators away from the German leader, who will hold talks with conservative Prime Minister Antonis Samaras.

As a helicopters buzzed overhead, thousands of protesters, chanting "History is written by the disobedient" gathered peacefully in front of Greek parliament, while one group of demonstrators burned a Swastika and threw it onto a police barrier.

"I have no doubt that (Merkel) has good intentions, and wants to help, but that won't solve Europe's problem," retired teacher Irini Kourdaki said.

Merkel will meet with Samaras and was also due to hold talks with President Karolos Papoulias before flying back out of the country.

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The lanky, bespectacled 23-year-old trekked through rough terrain, sometimes with nothing but sugar water to sustain him during the two-month journey. He reached his destination when he crossed the muddy Evros River dividing Turkey from Greece.

Or so he believed. “I thought I’d find a better life,” he said in central Athens. “You can enter Europe, but you can’t really enter.”

Jama is one of hundreds of thousands of migrants who have crossed into Greece only to find themselves confronted by a dismal intersection of two unfolding crises. A decade of catastrophic economic decline and political upheaval together with Greece's role as the prime gateway to the European Union are helping fuel a wave of racism and violence.

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Documentarians Brandon Jourdan and Marianne Maeckelbergh of the Global Uprisings project have been making short films about unrest and dissent all around the globe in recent months, from Europe to Egypt to the U.S.. They put together this short film (below), chronicling the protests and the police response, and detailing the reasons why so many Spaniards took to the streets.

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President Francois Hollande's cabinet defended the spending plan for next year, calling it a "fighting budget" that would win the "battle" against joblessness and help growth.

Like many European countries, France must tread a fine line between cutting the debts that dragged them into the current financial crisis and investing in the economy to spur growth.

The French economy, the second largest among the 17 countries that use the euro, has not grown for three straight quarters, the national statistics agency confirmed Friday. Unemployment has been on the rise for more than a year and stands at 10.2 percent.

Economists warn, however, that things could get much worse in France if it doesn't get serious about slashing state spending and reforming stringent labor laws.

"This is a serious budget, it's a leftist budget and it's fighting budget," Finance Minister Pierre Moscovici told French radio station Europe-1 Friday morning.

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Finance Ministry spokesman Martin Kotthaus said Monday that “the discussion in Brussels is not concluded” on the issue and it’s not possible to say by how much a so-called leveraging of the fund, the European Stability Mechanism, might increase its power.

Eurozone countries agreed last year that the existing temporary rescue fund, the European Financial Stability Facility, could be leveraged, but the possibility has never been used.

Kotthaus said that, whatever happens, Germany’s total liability of up to €190 billion won’t increase and any agreement would need the German Parliament’s approval. The new ESM is expected to start work next month.

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From the New York Times:

"With the ruling, the 17 countries of the euro zone will be able to move ahead with the establishment of the European Stability Mechanism, something like a continental version of the International Monetary Fund. The mechanism will handle bailouts and work in tandem with the European Central Bank to buy the bonds of countries like Italy and Spain that are straining under high interest rates."

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But in words that would have pleased Samaras, she said Germany wants Greece to remain in the euro zone. She said she wants to end a dispute between Greek and German politicians who question Greece’s ability to see reform through and have called for it to be kicked out of the euro zone.

“I am deeply convinced that the new government under the leadership of Prime Minister Samaras will do what it takes to solve the problem in Greece,” Merkel said in what was seen as a rebuke to hard-line members of her own coalition. She added that she wanted to help Greece see “the light at the end of the tunnel."

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Home prices in Ireland took a vertical plunge and languish at around half the levels they reached during the mid-2000s boom. They've tumbled almost 20 percent in Spain and Greece during the past five years, while Serbia, Austria and Norway have seen prices rise.

Amid the chaos, there are opportunities aplenty for canny buyers on the lookout for bargain basement investments or knockdown vacation homes. Here are some of them.

Castles in Italy

Italian Prime Minister Mario Monti is speeding up the sale of state properties as part of his struggle to slash the national debt. Venetian palazzos, hilltop castles and historic army barracks are due to come under the hammer.

Plumb locations already put up for offer include a Napoleonic fortress in Liguria and an abandoned mining village on the Mediterranean island of Elba.

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In Greece, the ratio of people who killed themselves rose from 2.8 for every 100,000 in 2010 to nearly 5 for every 100,000 in 2011. A study published last year in the Lancet concluded that for every 1 percent rise in unemployment there is a 0.8 percent rise in suicides in people younger than 65.

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Spain and Germany issued assurances on Tuesday that Madrid will not need a full bailout. But the country is facing record borrowing costs as government coffers run low, pushing the euro crisis to a new level of intensity many believe can be resolved only by a comprehensive solution opposing camps in the European Union show no signs of reaching.

Spain isn’t the only major concern.

At the other end of the Mediterranean, new fears are growing that Greece will be forced out of the euro.

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