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EU leaders walk tightrope between austerity, growth

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(Globalpost/GlobalPost)

European Union leaders tried Thursday to find a balance between austerity and growth policies amid rising fears of social unrest as unemployment soars and Europe's economy remains in the doldrums.

Germany, the bloc's strongest economy and paymaster, is holding to a hardline on austerity, insisting that only discipline ensures real growth while France and several others want some leeway so as to ease the immediate pain.

The debate is more than academic. A brash anti-austerity party won a stunning 25 percent of the vote in last month's Italian elections, a warning for German Chancellor Angela Merkel who faces polls later in the year.

Unions have already set up camp across from the summit venue at EU headquarters in Brussels, aiming to make their point amid a heavy police presence with huge banners proclaiming "Austerity Pact, No! Solidarity Pact, Yes!"

"We do not need another summit where EU (leaders) ... try to sugar-coat and deny the harsh reality," said Hannes Swoboda, head of the Social Democrat group in the European Parliament as leaders arrived for a 1600 GMT start.

"We need action and new tools to get Europeans back into jobs and our economies back on track," Swoboda said.

EU President Herman Van Rompuy said that if the worst of the debt crisis appeared over, leaders were still meeting against a backdrop of "social distress."

It is not a choice between austerity and growth, Van Rompuy said -- the EU has to make the grade on all fronts.

"In the short-term, we cannot turn a blind eye to the social emergency in some of our countries," he said, highlighting the danger of soaring youth unemployment, which now runs at more than 50 percent in Greece and Spain.

One EU official said the vote outcome in "Italy has made a lot of people think."

The problem, he added, was that governments still need to balance public finances after years of overspending, but austerity and belt-tightening cannot be the only response.

"You need to implement these plans carefully and with flexibility, otherwise there is no growth," the official said. "If there is no growth for 10 years then you can't pay back your debt ... there is not much room for manoeuvre."

A draft of the summit conclusions obtained by AFP says that given the currently "unacceptably high levels of unemployment" -- expected to hit an unprecedented high of around 12 percent this year -- it is critical to support growth "as a matter of priority."

The key to stabilising public finances must be "growth-friendly fiscal consolidation", it adds.

Another EU official said this language offers the possibility that targets can be eased or adjusted, with leaders trying to nail down "what growth-friendly fiscal consolidation really means" in practice.

The issue is crucial for France after President Francois Hollande recognised he could not cut its public deficit to the EU limit of 3.0 percent of gross domestic product this year, coming in instead at 3.7 percent as a weak economy exacts its toll.

Failing to meet the target leaves France needing another year of grace from Brussels, an extension it seems likely to get.

But German Finance Minister Wolfgang Schaeuble made the case again Wednesday for sticking to austerity first.

"Growth and (budgetary) consolidation are not mutually exclusive but rather they reinforce each other," Schaeuble said. "The confidence that solid state finances brings is the pre-condition for sustainable growth."

Highlighting the point and the sharp difference with France, the German government approved a 2014 budget based on the lowest headline deficit for some 40 years.

During their two-day talks, the 27 EU leaders will also discuss financially beleaguered Cyprus, taking the opportunity to meet its newly elected president, but are not expected to make any decisions on a planned debt bailout.

That issue will be covered by a separate eurozone finance ministers meeting late Friday after the summit closes.

The second day of the summit Friday will review relations with the EU's strategic partners, notably Russia, where ties have been strained by Russian President Vladimir Putin's clampdown on the opposition.

bmm-bur/rt/jmm

http://www.globalpost.com/dispatch/news/afp/130314/eu-leaders-walk-tightrope-between-austerity-growth-0