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Europe plunges deeper into crisisMichael Probst/The Associated Press

The bruised nations of the euro zone are plunging into several trying days that will test whether an increasingly fragile monetary union can withstand further blows.

The 17-member group heads into this next round in its deepening crisis having suffered almost daily hits.

Wednesday alone, Moody's Investor Services cut Spain's credit rating, Italy was forced to pay sharply higher rates at a debt auction, and even Germany, deemed the safe haven of the crisis, found bond investors cautious.

The troubles are so far along now that Alan Greenspan, once the world's top central banker, declared the "noble experiment" of the currency union a failure.

Global markets can expect further turmoil as Greece heads into a weekend election that could determine whether it remains a partner in the group. The Greek vote, which pits the pro- and anti-austerity forces against each other, is seen as a test of both the euro zone and its efforts to corral runaway debt with crippling cutbacks.

"We are now seeing this as an overall vote on Greece's continued desire to remain a part of the grand European monetary experiment," sales trader Will Hedden of IG Index said of the election, which was called after the last vote left no clear winner despite the gains made by the anti-austerity camp.

"Opinion polls are still divided, but we are seeing a leaning towards a pro-bailout result in our own Greek election market," Mr. Hedden said.

"Some are calling this the 'biggest weekend since Lehman' and they may well be right, so it is understandable that caution, indecision and uncertainty are the buzzwords of the day."

With markets already anxious over the Greek election, Moody's added fuel to the euro fire late Wednesday by cutting Spain's rating, to Baa3 from A3, in the wake of its weekend agreement for up to €100-billion ($129.3-billion) for its ailing banking system.

Warning it could cut further still, the agency said Spain's plans to borrow the money will "further increase the country's debt burden, which has risen dramatically since the onset of the financial crisis."

It also cited the government's "very limited" access to markets and its "growing dependence" on the country's banks to buy its new bonds. They, in turn, get their funding from the European Central Bank.

"The Spanish economy's continued weakness makes the government's weakening financial strength and its increased vulnerability to a sudden stop in funding a much more serious concern than would be the case if there was a reasonable expectation of vigorous economic growth within the next few years," Moody's added.

At a conference in Montreal, Mr. Greenspan, former chairman of the Federal Reserve Board, said the only solution to the crisis is a full political union.

Asked during a question period after his presentation if the European monetary union is a failure, Mr. Greenspan replied: "Has it failed? Yes it has failed. The question is what happens now, what do we do about it?

"You cannot continue doing what they're doing," he said.

The expectation that the cultural differences between the euro zone countries would be erased, as the poorer southern countries became more like their richer northern cousins, has not been fulfilled, he said.

"What they [countries such as Spain, Italy, Portugal and Greece] are doing is borrowing money on northern Europe's credit card," he said in reference to the huge deficits that have been accumulated in the poorer nations.

The turmoil in Europe is also casting a shadow over the United States, which itself is headed for another debt crisis, Mr. Greenspan warned, citing the inability of politicians to reach a compromise on urgent economic issues, as well as the troubles in Europe.

"We would be doing far better if we didn't have the pall of Europe hanging over us and frankly it's going to get worse before it gets better," he said.

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