Europe's debt fix falters, rattling markets

Spanish finance minister Luis de Guindos calls the austerity vs. growth dilemma a "lose-lose situation": If you cut spending, you risk slowing the economy. But if you borrow to stimulate the economy, you make the debt bigger.

The effects of government cuts, at least, are painfully clear. On top of Monday's news that the country is in recession again, Spain's unemployment rate is 24 percent.

Its debt is rising as a share of economic output. At the end of last year, the ratio stood at 68.5 percent, below the average for euro countries. But it is forecast to rise above 80 percent by the end of this year.

Spanish Prime Minister Mariano Rajoy and Italy's Monti, the two leaders on the front line of the debt crisis, are also trying to promote long-term reforms to their economies. Those include cutting regulation and easing labor market rules to make it easier for businesses to fire people and adjust workforces to global competition.

But structural reforms can take years to show results. And sometimes changes such as easing firing can make things worse in the short term, with the gains coming years later.

In the meantime, said Eswar Prasad, a professor of trade policy at Cornell University, "political support for fiscal austerity and structural reform measures are eroding all across Europe."

AP Business Writers Sarah DiLorenzo in Paris, Gabriele Steinhauser in Brussels and Paul Wiseman in Washington contributed to this report.