EU: Austerity versus growth

"Europe Day" on May 9 marks the moment in 1950 when French foreign minister Robert Schuman initiated what became the Europe Union. Its 62nd anniversary has been overshadowed by more debate at an EU conference in Florence focusing on how to fix the eurozone's debt crisis.

Economic and Monetary Affairs Commissioner Olli Rehn acknowledged the electoral upheaval from Sunday's polls in Greece and France by saying: "Economic growth and jobs are dominating the minds of Europeans."

France on Sunday voted for a Socialist president, Francois Hollande, who wants spending to induce growth, while the Greek left-wing party charged with forming a government, second-placed Syriza, has vowed to renege of the terms of the bailout Greece's previous government agreed with the EU and International Monetary Fund (IMF).

Markets tumble

The uncertainty on Wednesday sent markets and the euro tumbling. Spain's share market closed at its lowest level since 2003, prompted by worries over bad debts held by banks from a collapsed property market.

At the anniversary conference in Florence, EU Internal Market and Services Commissioner Michel Barnier said it was "hard to find a balance between measures that are credible for the financial markets and measures that people can bear."

"The Germans have this culture of budget stability that should inspire all other countries," Barnier told news agency AFP. "But we can't just do that. We have to pursue this course remembering our economic ideal - a social market economy."

Austerity simply good, says Barnier

"What we call austerity is simply good management after sometimes 30 years of laxity of political leaders of the left and the right," he said.

Rehn told the conference that Europe needed to "stay the course on economic stabilization and at the same time strengthen actions for sustainable growth and job creation."

The debate follows calls by French president-designate Hollande for the inclusion of growth promotion, including more ECB lending to struggling eurozone nations - in a renegotiated "fiscal pact." The pact was adopted by 26 EU nations in December. Britain and the Czech Republic opted to stay out of it.

German Chancellor Angela Merkel, speaking in Berlin on Wednesday, again insisted that the pact was not up for renegotiation, ahead of informal EU leadership talks set for May 23. "Everyone must stick to the things we have agreed," she said.

German Finance Minister Wolfgang Schäuble added: "If Greece wants to remain in the eurozone, there is no better solution than the path it has already taken.

Italy calls for growth incentives

Florence conference host, Italian Prime Minister Mario Monti called for a "coalition of the willing" on growth.

"I am trying to find for Europe paths that can lead to higher growth without sacrificing the principles that are dear to the Germans and to me," Monti said.

Bank of Italy Director Fabrizio Saccomanni, also speaking in Florence, called on the European Central Bank (ECB) to "play a more active role in market stabilization."

Just a day earlier, the central bank chiefs of Germany and Ireland had resisted such pressure, saying the market jitters over Greece's inconclusive election outcome did not justify intervention.

The Bundesbank in a statement to a German parliamentary hearing said "the real causes of the sovereign debt crisis cannot be solved by monetary policy."

ipj/ng (AFP, Reuters)