Brussels - European leaders gathered in Brussels on Thursday, for once under little financial market pressure, with differences over austerity and how best to tackle the social costs of the debt crisis set to dominate.
The two-day summit will give EU leaders a chance to discuss budget policies, with signs that France, Spain and Portugal could be given more time to meet their deficit goals as long as they maintain a debt-cutting trend.
A statement agreed by member states ahead of the meeting called for an “appropriate mix of expenditure and revenue measures” to be pursued, a line taken by some to signal more wiggle-room on austerity, although Germany and others are likely to dispute that interpretation.
As he arrived for sideline talks ahead of the gathering, Dutch Prime Minister Mark Rutte, an advocate of strict budget restraint, said the agenda was necessarily broad-based.
“We will discuss growth and employment and how to fight the present economic deterioration in Europe,” he told reporters.
“At the same time creating a consensus on the fact that we need both to implement the necessary austerity programmes and structural reforms to improve our economies.”
After three years of combating problems that have forced bailouts of Greece, Ireland and Portugal and left Spain on the rack, the summit is less of a crisis gathering and more of an opportunity to assess the fallout from the turmoil.
The conundrum confronting leaders is how to find ways to stimulate growth without losing budget discipline.
The president of the European Parliament, the EU's only directly elected body, warned this week that a generation of young people risked losing faith in Europe unless rapid steps were taken to tackle joblessness and recession.
Nearly 27 million people are now unemployed across the EU, 11 percent of the working population, with the impact particularly harsh in Greece, Spain and areas of Italy and Portugal, where one in two young people are without work.
That has long-term social implications, but also reflects deep structural flaws in economies across southern Europe, whose productivity will suffer for years unless labour costs can be brought down and young people can be found employment.
Leading economists say the greatest threat to the survival of the single currency project is now a social implosion rather than market-driven factors such as the record-high borrowing costs seen in 2010-2012.
Much of the debt problem has been dealt with by the European Central Bank's pledge to do “whatever it takes” to defend the currency, bringing bond yields down. Now EU leaders are working out how to tackle the social repercussions.
Clemens Fuest, the head of Germany's ZEW economic institute, warned last month that sustained recession and high unemployment in countries such as Greece and Spain could tear the fabric of Europe apart and lead to the collapse of the euro.
“That is really the current plausible scenario for a break up of the currency union,” he told Reuters. “It may very well be that in these countries at some point the population will say 'we don't believe that things will get better'.”
In their advance statement, EU leaders highlighted their concern about low growth and high unemployment and committed themselves to a “youth employment initiative” that sets aside nearly 6 billion euros for the worst-affected regions of the EU over the coming seven years.
Analysts say that is far too little to make an impact, amounting to barely 100 euros for each young person without a job across the 27 countries in the European Union.
“Six billion will never be enough. I think 60 billion would not have been enough,” said one senior euro zone official, disappointed by the response to the problem. “It is our political response, it is not a response in substance.”
The difficulty for EU leaders and policymakers is finding a way to balance the need to stimulate growth and get the moribund European economy firing again, while not relenting on the need for strict caps on spending to keep budget deficits in check.
“Markets kill you if you lose fiscal credibility, and they also kill you if you don't have any growth, so it's quite a narrow path to tread,” said one EU diplomat, crystallising the debate between austerity and growth.
“The problem is, I don't know where most euro zone countries would find the fiscal space to stimulate if they were allowed.”
Olli Rehn, the European commissioner for economic affairs, who has been attacked by Nobel economist and New York Times commentator Paul Krugman for sticking too rigidly to austerity, said there was a way to strike a balance with growth.
“There is no real contradiction between sustainable growth and the sustainability of public finances,” he said. “We have to keep both objectives in mind and that is what the European Council will, I trust, do today.” - Reuters