Europe's economy will shrink in 2012, with Italy and Spainfacing sudden crunches as they battle to escape the debt crisis,the European Commission said.

The 17-nation euro economy will contract 0.3 percent, thecommission said, abandoning a November forecast of 0.5 percentgrowth. The downgrade was mainly due to projected contractions of1.3 percent in Italy and 1 percent in Spain.

“The euro area has entered into a mild recession,” EuropeanUnion Economic and Monetary Commissioner Olli Rehn told reportersin Brussels today after releasing the forecasts. “Prospects haveworsened and risks to the growth outlook do remain, but there aresigns of stabilization.”

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