MILAN: Europe’s priority must be to stimulate economic growth, Italy and France said Thursday, putting themselves at odds again with Germany, which is demanding deficit rigor. With signs of a global slowdown rattling investors and prompting sharp declines across financial markets, French President Francois Hollande and Italian Prime Minster Matteo Renzi stressed the need for expansive measures.
“Relaunching growth is the best way of stabilizing the markets,” Hollande said as he arrived in Italy’s financial capital for the start of a two-day meeting of European and Asian leaders.
Both France and Italy unveiled budgets this month that go back on commitments to respect EU borrowing limits – resisting peer pressure to cut their deficits because they say they need extra room to revive their beleaguered economies.
“We have canceled the word ‘growth’ for years to focus on fiscal discipline, but we cannot exit this crisis without investments,” Renzi said ahead of the Asia-Europe (ASEM) summit, at which leaders will discuss subjects from trade to terrorism.
Earlier Thursday, German Chancellor Angela Merkel struck a very different tone. Speaking in Berlin, Merkel said the rest of Europe must stick to EU rules or the bloc’s credibility would be at stake.
“All – and I stress here once again – all member states must fully respect the reinforced rules of the stability and growth pact,” she said.
Hollande blamed the market turmoil on a variety of factors, including unresolved tensions between Russia and Ukraine, Middle East conflicts and the spread of the Ebola virus.
But Europe’s internal problems were also a factor, he said.
After two years of relative calm on financial markets – underpinned by pledges of support from the European Central Bank – this week’s turmoil has fuelled fears of a possible return to the debt crisis that brought Europe to the brink of disaster.
The issue will not be resolved at ASEM, but Hollande said it would have to be confronted at an EU summit Oct. 24.
Merkel is committed to balancing the German budget next year, ignoring calls from some EU allies and Washington to boost domestic demand in order to combat falling growth rates and price stagnation.
Countries attending the ASEM conference, including China, Japan and Russia, account for 60 percent of the global economy.
While Europe looks especially sickly, economic growth rates are faltering in Asia too – even in China, which is widely expected to roll out a steady stream of stimulus measures in the coming months to stave off any crisis.
Besides tackling economic concerns, the summit is also likely to look hard at the Russia-Ukraine crisis. Russian President Vladimir Putin will take part in the summit and he will see his Ukrainian counterpart Friday.
Their rare, face-to-face encounter is not only expected to focus on the conflict in eastern Ukraine, but also on a long-running dispute over natural gas supplies that risks hindering energy flows to the rest of Europe in the coming winter months.
Kiev and its Western backers accuse Moscow of backing a pro-Russian separatist revolt in eastern Ukraine by providing troops and arms. Russia denies this, but says it has a right to defend the region’s Russian-speaking majority.
Merkel said Thursday that Russia should do more to safeguard a fragile cease-fire agreed last month in Minsk, which is regularly shaken by outbursts of lethal violence.
“It is obviously above all Russia’s task to make clear that the Minsk plan is adhered to. Unfortunately, there are still a lot of shortcomings, but it will be important to look for a dialogue here,” she said.