EU leaders walk tightrope between austerity, growth

European Commission President Jose Manuel Barroso (L), European Council President Herman Van Rompuy (C) and Ireland's Prime Minister Enda Kenny attend a Tripartite Social Summit at the European Union council headquarters ahead of an EU leaders meeting in Brussels March 14, 2013. REUTERS/Yves Herman

BRUSSELS: European Union leaders meet Thursday, seeking a balance between austerity and growth amid rising fears of social unrest as unemployment soars and Europe's economy remains stuck in the doldrums.

The stakes are high. A brash anti-austerity party won a stunning 25 percent of the vote in last month's Italian elections, a warning for austerity hardliners such as 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 headed to Brussels 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 in a statement.

"Italy has made a lot of people think," one EU official said.

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."

Analyst Carsten Brzeski of ING Bank warned that the social and political impact from high unemployment "could be the biggest threat to the survival of the eurozone."

A draft of the summit conclusions obtained by AFP too says that given the currently "unacceptably high levels of unemployment" -- expected to run at an unprecedented high of more than 12 percent in the EU all this year -- it is critical to support growth "as a matter of priority."

The key to stabilising the 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 Tuesday he could not cut the 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 note 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, in this case Russia, where ties have been strained by Russian President Vladimir Putin's clampdown on the opposition.





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