Europe's new deal

LONDON - Wearing her diamond-studded crown, Queen Elizabeth II arrived at Parliament yesterday in a gleaming horse-drawn carriage to deliver a message of austerity.

The speech laid out the agenda for Britain's new coalition government, but its theme of slashing a record deficit and spurring fragile growth resonated across Europe's ailing economies.

Governments across the continent announced more budget cuts yesterday, even as their stock markets and the euro were beaten down by investors fearful of stagnant growth and soaring deficits.

Belt-tightening is an urgent priority but comes with the real danger of stifling growth and launching a double-dip global recession.

Yet failure to clamp down could bring on bond-market skepticism or even panic - and a spiral of higher and higher borrowing costs as a result.

Also at risk are some of Europe's cherished welfare protections - from retirements in the early 60s to months or years of unemployment payments.

"The difference between medicine and poison is in the dose in which the medicine is provided," said Asghar Zaidi, research director for European Centre for Social Welfare in Vienna. "The budgetary consolidation is important, and justified, in its own right, but a delicate balance will have to be drawn between welfare goals and fiscal austerity."