EU leaders struggle
European leaders struggled to reconcile austerity with growth on Monday at a summit due to approve a permanent rescue fund for the euro zone and put finishing touches to a German-driven pact for stricter budget discipline.
Officially, the half-day summit was meant to focus mainly on ways to revive growth and create jobs at a time when governments across Europe are having to cut public spending and raise taxes to tackle mountains of debt.
But disputes over the limits of austerity, and about Greece’s unresolved debt restructuring negotiations with private bondholders, may sour efforts to send a more optimistic message that Europe is getting on top of its debt crisis.
The risk premium on southern European government bonds rose while the euro and stocks fell on concerns about a lack of tangible progress in the Greek debt talks and gloom about Europe’s economic outlook.
Highlighting those fears, Spain’s economy contracted in the last quarter of 2011 for the first time in two years and looks set to slip into a long recession.
And France halved its 2012 growth forecast to a mere 0.5 percent in another potentially ominous sign for President Nicolas Sarkozy’s troubled bid for re-election in May. Prime Minister Francois Fillon said the cut would not entail further budget savings measures.
Conservative Spanish Prime Minister Mariano Rajoy, attending his first EU summit, said Madrid was clearly not going to meet its target of 2.3 percent growth this year. That has raised big doubts about whether it can cut its budget deficit from around 8 percent of economic output in 2011 to 4.4 percent by the end of this year as promised.
European Commission President Jose Manuel Barroso hinted that Brussels may ease Spain’s near-unattainable 2012 deficit target after it updates EU growth forecasts on February 23.
