EU leaders leaning toward growth v. austerity

ROME — The leaders of Italy, Spain, Britain and nine other European Union countries have appealed for the EU to put growth over austerity, hoping to breathe life into the EU's moribund economy.

“Growth has stalled. Unemployment is rising. Citizens and businesses are facing their toughest conditions for years,” the leaders wrote in a letter sent Monday to top EU officials in Brussels.

“We need to restore confidence among citizens, businesses and financial markets in Europe’s ability to grow strongly and sustainably in the future and to maintain its share of global prosperity.”

The leaders of the EU's two leading economies did not sign up, leading many to see the letter as a challenge to German Chancellor Angela Merkel, the main architect of Europe's austerity-led crisis response, and her sidekick, French President Nicolas Sarkozy.

“Merkel should heed this coordinated rebellion,” said an editorial Tuesday in the Spanish daily El Mundo.

Read more: Merkel and Sarkozy's tie that binds

However, officials in Berlin were quoted saying Germany might have been willing to accept the ideas in the letter, but suggested that Merkel was simply too busy to notice it.

Privately however, diplomats say the reason Merkel declined to sign was to avoid embarrassing Sarkozy, whose campaign for re-election she is openly supporting.

Trailing in opinion polls, with two months to go until the French presidential election, Sarkozy would face a storm at home from and left and right were he to sign up to the letter's call for free trade, deregulation and labour market liberalization.

Merkel is anxious to avoid any steps that could undermine Sarkozy's campaign. She fears his Socialist rival Francois Hollande would unravel much of her plan to save the euro zone if he were elected.

The letter calls for a series steps to get Europe out of this “perilous moment” for its economy.

Read more: Sarkozy's reelection bid

They include opening up the EU's internal market to fully free trade in services, online commerce and energy; promoting research, innovation and start-up companies; removing barriers to international trade with the likes of the United States, China and Japan; cutting red tape; liberalizing labor markets; and ensuring the banking sector is strong, secure and able to support business. 

The letter was signed by the leaders of Italy, Britain, Spain, the Netherlands, Estonia, Latvia, Finland, Ireland, Czech Republic, Slovakia, Sweden and Poland. It comes amid a growing realization among European leaders that austerity alone will not pull Europe out of the economic doldrums. “With bold and effective action and strong political will we can recover Europe’s dynamism and put our economies back on the path to economic recovery,” the leaders said.

Merkel and Sarkozy will have their chance to respond at the next EU summit on March 1 – 2.

But it’s unlikely any progress will be made on these points until the French elections in April.