DUBLIN (AP) — Ireland's economy shrank by an unexpectedly large 1.9 percent in the third quarter, part of a litany of bad financial news across Europe that has renewed worries about the continent's ability to survive its debt crisis.
The report from Ireland's Central Statistics Office on Friday dashed forecasts of only a minor drop in economic activity and raised doubts about the country's capacity to meet deficit-fighting targets through painful cuts.
Elsewhere, Spain's central bank reported that debt levels for the country's 17 regions have soared 22 percent over the past year. EU officials in Brussels warned that private creditors were resisting EU efforts to write off €100 billion ($130 billion) in Greek debts.
And in Portugal, the main opposition party refused to support the government's plan to amend the constitution to include a budget limit. All 17 members of the eurozone are supposed to make such commitments as part of the bloc's week-old plan to enshrine spending controls in a new treaty, a draft of which was sent to governments on Friday. Talks on the new treaty were to start Tuesday, with a second round in early January.
Until now, EU leaders have held up Ireland as an example of how a country can keep growing its economy while simultaneously sucking money out of it through spending cuts and tax hikes. Ireland's economy was performing better than those of Greece and Portugal, the other two European nations to have received an international bailout.
But Ireland, midway through a seven-year deficit-fighting program that requires at least modest growth to meet its targets, said its gross domestic product fell 1.9 percent in the July-September period — the worst quarterly fall in the eurozone.
Economists had expected a drop of only around 0.5 percent following two quarters of gains.
The third-quarter drop means Irish growth is averaging just 0.7 percent so far this year. Economists said they doubted that Ireland could rebound sufficiently in the current quarter, if at all, to meet the government's modest target of 1 percent GDP growth.
The European Union and International Monetary Fund last year extended a potential €67.5 billion ($88 billion) line of credit to Ireland. Greece received its own bailout in May 2010, Portugal in April 2011.
As part of its deal, the Irish promised to rein in their deficit to the eurozone's 3 percent limit by 2015. Ireland posted an EU-record deficit of 32 percent of GDP in 2010 but hopes to reduce it to 10.1 percent this year.
All sides agree that Ireland cannot hope to meet the 2015 goal if its economy doesn't grow sufficiently.
Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin, said Ireland would "do well" to reach 0.5 percent growth this year "given the deteriorating world economic backdrop and the fall-off in global demand."
David Begg, general secretary of the Irish Congress of Trade Unions representing about a third of Ireland's 2 million-strong work force, said the government's austerity program was too severe and "making recovery almost impossible."
"No economy can sustain the sort of ongoing damage that is being inflicted on us," Begg said. "The latest figures show, yet again, a big drop in domestic demand while retailers warn of more closures in the new year. We need growth and we need it quickly."
Fergal O'Brien, chief economist at the Irish Business and Employers Confederation that represents 7,500 companies, noted that Irish exports were still growing, while much of the quarterly fall was caused by a 20.9 percent drop in business investment in new equipment.
"It is likely that some firms are slowing investment decisions again due to the deteriorating international outlook," he said.
Ireland's latest austerity plans published last month are based on the presumption that Irish GDP will grow 1.6 percent in 2012 and 2.8 percent annually in 2013, 2014 and 2015. Economists have labeled those figures too optimistic.
Gross national product, meanwhile, fell 2.2 percent, short of expectations for a flat performance. Many economists consider GNP a better barometer of Ireland's economic health because it excludes the largely expatriated profits of nearly 1,000 foreign companies operating in the country.
Ireland this year is spending €57 billion ($74.5 billion) — including more than €10 billion ($13 billion) in aid to its five nationalized banks — but collecting barely €34 billion ($44 billion) in taxes.
To try to reduce the gap, the government is imposing €2.2 billion ($2.9 billion) in 2012 spending cuts and raising €1 billion ($1.3 billion) in extra taxes, including a 2-point hike in sales tax to 23 percent and a new national property tax.
EU heavyweight France also sought to come to grips with a new report putting the country on course for recession.
The French statistics agency Insee forecast Thursday night that the country's economy would decline in the last quarter of 2011 and the first quarter of 2012 and resume weak growth only thereafter.
Insee said it expects the eurozone as a whole to experience "a short recessive episode" over the winter, and cautioned that market volatility made such predictions difficult.
France has been bracing for a potential downgrade of its top AAA credit rating. Its leaders insisted Friday their nation's economic fundamentals are strong — and lashed out at Britain, which has been blamed for undermining confidence in Europe's efforts to tame the eurozone debt crisis.
"We would prefer to be French right now than British in terms of the economy," French Finance Minister Francois Baroin told Europe-1 radio.
Baroin described France's banks as "among the most resistant in the world" and called Britain's economy "worrying." He declined to elaborate.
Earlier this week France's central bank governor, Christian Noyer, told the French daily Le Telegramme that Britain should be at greater risk of losing its AAA rating than France.
He was quoted as saying that Britain suffers from "higher deficits, as much debt, more inflation, and less growth than we do. (Its) credit is collapsing."
Angela Charlton in Paris, Gabriele Steinhauser in Brussels and Ciaran Giles in Madrid contributed to this report.