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EU’s $1 trillion plan fails to quell market jitters

EU strikes back after Greek debt crisis goes global. Europe mulls US nukes: out-of-date, unsafe and still here. Estonia shows that the battered eurozone still has appeal. Britain’s post-election love in bemuses Europe.

 Top News: One story has dominated European headlines over the past month: the Greek financial crisis and its potential to destabilize the entire euro-zone economy.

It’s been a roller coaster ride as media sentiment following the markets which dragged European stock markets and the common currency down to record lows, then soared on the announcement of a trillion dollar rescue plan, only to tumble against as doubts grow about the continent’s capacity to swallow the tough economic medicine needed to cure the debt disease.

After months of half-measures failed to stop the flight of investors from Greek bonds, the long-feared contagion to the other countries of southern Europe appeared to have begun in earnest on May 6 when markets battered Spain, Italy and Portugal. The crisis also started to go global as concern over the spreading debt debacle sent the Dow Jones collapsing to its worst daily loss in 20 years.  European media portrayed disarray among governments and a continent on the brink.

After a weekend of frantic international talks including an emergency EU summit, trans-Atlantic phone calls from President Obama to European leaders and late night gathering of euro-zone finance ministers, a rescue package for Greece was finally agreed, swiftly followed by the $1 trillion plan for the EU and International Monetary Fund to intervene should other euro-zone nations risk sliding toward a Greek-style meltdown over the next three years.

The stakes could hardly have been higher. German Chancellor Angela Merkel warned that Europe was facing its greatest test since the fall of Communism with the very future of the EU in the balance. President Nicolas Sarkozy was forced to deny media reports that he’d warned that France could pull out of the eurozone if Germany did not agree to the plan bolster Greek finances. Immediately after the trillion dollar plan was announced markets rebounded and there was a brief moment of relief mixed with euphoria.

However, doubts quickly resurfaced over whether the austerity that Europe needs to bring public finances in order will stifle tentative hopes of an economic recovery. News that prices are falling in Spain and Portugal where both governments have announced severe belt-tightening measures added to the market unease.

Away from the debt crisis, Europeans have been re-examining a legacy of the Cold War, reviving the debate about whether the time has come for the United States to remove its remaining nuclear weapons from Europe.

Germany’s Foreign Minister Guido Westerwelle has been leading calls for the around 200 remaining weapons to be withdrawn, saying they no longer serve a purpose and are a potential safety risk and terrorist target. However at a NATO meeting in Estonia, US Secretary of State Hillary Clinton secured backing from many allies for keeping the nukes in Europe, at least for the near future. Germany meanwhile welcomed Washington’s disclosure of the overall strength of its nuclear arsenal.

Money: Britain’s euro-skeptic commentators have been indulging in a serious bout of schadefreude over the state of the euro, but for many in Eastern Europe the prospect of joining the EU’s single currency is regarded as a much needed prop to their economic stability.

The European Commission’s recommendation this month that Estonia be allowed into the currency bloc — which means it could join on Jan. 1 2011 —  provided a boost to confidence in the Baltic nation.

Hit hard by the crisis in 2008, Estonia, and the other Baltic states, are seen by many as a model for Greece and other southern European nations, after introducing draconian austerity measures. Estonia’s deficit is currently 2.4 percent of GDP, its national debt 9.6 percent. The figures for Greece are 13.6 percent and 115 percent.

Elsewhere: Much of the rest of Europe has been somewhat bemused by the British media’s concern about the emergence of the country’s first coalition government since World War II.

While the British worried about a power vacuum during the five days David Cameron and Nick Clegg were cobbling together the Conservative-Liberal Democrat pact to run the country, other countries reflected on the weeks or months it routinely takes their parties to agree on coalition terms.

There was some relief in Brussels that the entry into government of the pro-European Liberal Democrats should moderate the Conservative’s euro-skeptic positions, which many in mainland Europe saw a potential roadblock to progress in the EU.

Meanwhile, the leading light of the UK Independence Party was recovering from injuries sustained in an election stunt plane crash. Nigel Farage, who attempted to secure a place in the House of Commons on a pull-Britain-out-of-the-EU platform, expressed disappointment he’d received no best wishes from the EU official he’d recently described as having “all the charisma of a damp rag.”