Bitter party rivals buried their grievances to give a non-elected, technocratic government time to convince financial markets that the world's 8th-largest economy isn’t headed for a Greek-style meltdown.

But all that changed over the Christmas break, when the country was suddenly plunged into an election campaign that's seen as crucial not only for Italy’s future, but for the entire euro zone.

The head of Germany’s central bank warned the country would be flirting with disaster if it allowed the elections to derail efforts to reform its economy and reduce the euro zone' second-highest government debt.

"It would be disastrous if they [the reforms] were called into question by the outcome of the elections," Jens Weidmann told the business magazine Wirtschaftswoche on Thursday. "If the reform process comes to a halt, Italy would again lose investors’ confidence."

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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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Krugman argued for reframing the idea of a "fiscal cliff" in terms of an "austerity bomb" (a term he attributes to Brian Beutler). His (ever-Keynesian) point is that we do not risk tumbling off some metaphorical cliff of towering deficits -- far more threatening is an explosion of austerity. Krugman wrote:

The cliff stuff makes people imagine that it’s a problem of excessive deficits when it’s actually about the risk that the deficit will be too small; also and relatedly, the fiscal cliff stuff enables a bait and switch in which people say “so, this means that we need to enact Bowles-Simpson and raise the retirement age!” which have nothing at all to do with it.

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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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ATHENS, Greece –  Hundreds of youths pelted riot police with petrol bombs, bottles and chunks of marble Thursday as yet another Greek anti-austerity demonstration descended into violence, less than a month after more intense clashes broke out during a similar protest.

Authorities said around 70,000 protesters took to the street in two separate demonstrations in Athens during the country's second general strike in a month as workers across the country walked off the job to protest new austerity measures the government is negotiating with Greece's international creditors.

A 65-year-old protester suffered a fatal heart attack during the demonstration but efforts to revive him failed. The organizers of the protest march he participated in said the man had fallen ill before any rioting had broken out.

The measures for 2013-14, worth €13.5 billion ($17.7 billion), aim to prevent the country from going bankrupt and potentially having to leave the 17-nation eurozone.

Riot police responded with volleys of tear gas and stun grenades in the capital's Syntagma Square outside Parliament as protesters scattered during the clashes, which continued on and off for about an hour. Another general strike in late September had also seen limited, but much more intense, clashes between protesters and police.

Four demonstrators were injured after being hit by police, volunteer paramedics said. The Health Ministry said two of the protesters were treated in hospital and that their injuries were not serious.

Hundreds of police had been deployed in the Greek capital ahead of the demonstration, as such protests often turn violent. Police said about 50 people were detained Thursday.

A similar demonstration by about 17,000 people in the northern city of Thessaloniki ended peacefully.

Thursday's strike was timed to coincide with a European Union summit in Brussels later in the day, at which Greece's economic fate will likely feature large.

The strike grounded flights, shut down public services, closed schools, hospitals and shops and hampered public transport in the capital. Taxi drivers joined in for nine hours, while a three-hour work stoppage by air traffic controllers led to flight cancellations. Islands were left cut off as ferries stayed in ports.

Athens has seen hundreds of anti-austerity protests over the past three years, since Greece revealed it had been misreporting its public finance figures. With confidence ravaged and austerity demanded, the country has sunk into a deep economic recession that has many of the same hallmarks of the Great Depression of the 1930s.

"We are sinking in a swamp of recession and it's getting worse," said Dimitris Asimakopoulos, head of the GSEVEE small business and industry association. "180,000 businesses are on the brink and 70,000 of them are expected to close in the next few months."

Higher taxes expected to be levied in the new austerity program will destroy many of the struggling businesses that have managed to weather three years of the crisis so far, he said.

"In 2011, only 20 percent of businesses were profitable. So these new tax measures present small businesses with a choice: Dodge taxes or close your shop."

The country is surviving with the help of two massive international bailouts worth a total €240 billion ($315 billion). To secure them, it has committed to drastic spending cuts, tax hikes and reforms, all with the aim of getting the state coffers back under some sort of control.

But while significantly reducing the country's annual borrowing, the measures have made the recession worse. By the end of next year, the Greek economy is expected to be around a quarter of the size it was in 2008. And with one in four workers out of a job, Greece has, along with Spain, the highest unemployment rate in the 27-nation European Union.

The country's four-month-old coalition government is negotiating a new austerity package with debt inspectors from the EU, International Monetary Fund and European Central Bank. The idea is to save €11 billion ($14.4 billion) in spending — largely on pensions and health care — and raise an extra €2.5 billion ($3.3 billion) through taxes.

After more than a month and a half of arguing, a deal seems close. On Wednesday, representatives from the EU, International Monetary Fund and European Central Bank, said there was agreement on "most of the core measures needed to restore the momentum of reform" and that the rest of the issues should be resolved in coming days.

Greece is also seeking a two-year extension to its economic recovery program, due to end in 2014. Without the extension, it would need to take €18 billion worth of measures instead of the €13.5 it is currently negotiating.

Athens hopes to get the next loan installment around mid-November. Prime Minister Antonis Samaras has said the country will run out of cash by the end of that month, meaning Greece would most likely have to default on its debt and potentially end its membership of the euro currency.

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Costas Kantouris in Thessaloniki, and Elena Becatoros and Nicholas Paphitis in Athens contributed.

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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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Around 20,000 people marched in Madrid behind a banner that said, "They want to ruin the country. We have to stop them." The rally in Spain's capital was supported by 150 organizations.

Protesters chanted slogans against cuts and waved placards reading "youth without jobs, society with no future." That is a reference to the youth unemployment rate, which surpasses 50 percent. Spain's overall jobless rate is nearly 25 percent and social unrest is on the rise.

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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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Riot police used tear gas and pepper spray against several hundred demonstrators after the violence broke out near the country's parliament. Protesters also set fire to trees in the National Gardens and used hammers to smash paving stones and marble panels to use as missiles against the riot police.

About 50,000 people joined the union-organized march in central Athens on Wednesday, held during a general strike against new austerity measures planned in the crisis-hit country. The action, the first large-scale walk-out since the country's coalition government was formed in June, closed schools and disrupted flights and most services.

Everyone from shopkeepers and pharmacists to teachers, customs workers and car mechanics joined the demonstration, seen as a test of public tolerance for more hardship after two years of harsh spending cuts and tax hikes.

"People, fight, they're drinking your blood," protesters chanted as they banged drums.

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Thousands of protesters clashed with riot police in Spain's capital Tuesday in a showdown on the doorstep of the parliament building in Madrid.

Tuesday's march aimed to manifest rage against a new round of harsh austerity measures the government will announce in the 2013 budget on Thursday.

A manifesto for the day stated that "the current situation has exceeded all tolerable limits" and demanded a reconstitution of the entire Spanish government, including electoral and tax reform, and a moratorium on Spain paying national debts in the service of "private interests."

The Indignados, as the Spanish anti-austerity, anti-capitalist demonstrators are known, strongly influenced Occupy organizing models and tactics last year, including repurposing city squares for encampments and assemblies.

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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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“WHO WILL WILLINGLY DIE for [. . .] the EEC?”

When Benedict Anderson asked this sarcastic question in 1983, referring to the European Economic Community, a now-forgotten ancestor of today’s European Union, he did not have to add that, for better or worse, many people are willing to die for their nation. They’ve proved it, war after war after war. Anderson’s point was that nationalism moves mountains, but its potent we’re-all-in-it-together feeling tends to stop short at the border. The survival of your country may be capable of stirring your gutsiest emotions; the survival of the eurozone almost certainly isn’t. Unless you’re a banker.

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