Austerity row lays bare Europe-wide divisions

ROME - Agence France-Presse

Demonstrators break the protective barrier during a protest near the Spanish Parliament. The Spanish government has announced new reforms on April 26 that includes new cutbacks to meet deficit target. The measure have been agreed with the European Commission and eurozone peers, deputy PM has said. AP photo

Southern European countries are struggling to find a balance between growth that they desperately seek after years of financial troubles and Europe-forced austerity measures amid the heated debate about Europe’s austerity drive has flared back into life.

Leading International Monetary Fund and European Central Bank officials are sharply at odds over continued budget cutting in an era of recession while Chancellor Angela Merkel has declared that Germany requires higher interest rates.

European Commission President Jose Manuel Barroso said this week austerity had reached the natural limits of popular support, fanning a bitter debate over whether lawmakers should shift their focus from cost-cutting to stimulus which has pitted Germany against many eurozone peers.

German Finance Minister Wolfgang Schaeuble lashed out at Barosso on April 25, telling lawmakers the eurozone’s woes had nothing to do with strict budget rules and “somebody should tell Barroso that”.

Merkel also said on April 25 that Germany would continue to work towards balanced budgets and she rejected French Finance Minister Pierre Moscovici’s accusation that Germany was too heavily focused on saving.

Spain softens tone

One of the keenest European advocate of austerity was Spanish Prime Minister Mariano Rajoy in his first year in power. The prime minister had tried since February to find a middle way between the pro-austerity and pro-growth camps, saying Spain would always be disciplined on spending but indicating that he would also now lean more to stimulating growth.

In a bid to obtain more leeway from the European Union to cut its public deficit and to turn around the economy in time to win re-election, Spanish government on April 26 have presented a package of reforms it wants to have implemented by 2015.

The country hopes to bring its swollen deficit below the 3 percent EU limit by the end of 2016, two years later than promised, the economy ministry said in a statement.

The move is an admission that austerity measures so far have not been as effective as hoped, and that rushing more budget cuts could excessively harm the economy.

Spain hopes to cut the deficit to 6.3 percent of annual GDP this year, 5.5 percent in 2014, 4.1 percent in 2015 and 2.7 percent in 2016.

The forecasts are part of a reforms program to be presented to European Union authorities.
The government forecasts the economy will contract 1.3

percent in 2013, instead of 0.5 percent as originally predicted. It says it will grow 0.5 percent in 2014.
Meanwhile Italy’s Silvio Berlusconi, whose party join theed coalition taking shape on April 26, said the new government should “confront” Europe over austerity and the 3.0-percent deficit ceiling.

“We could think about confronting Europe, explaining that the limit of 3.0 percent on the deficit and the fiscal compact are correct but not when you are already in recession,” Berlusconi told Corriere della Sera in an interview.

“Would there be a stand-off with the European Union? Not necessarily. I don’t see a common leadership on this and I think even Brussels is becoming convinced that there has been too much austerity,” Berlusconi said.

The 76-year-old billionaire tycoon said he wanted to be the new finance minister but admitted this was unlikely and suggested that a leading member of his People of Freedom party, Renato Brunetta, should take the post instead.

Brunetta has been sharply critical of Germany’s role in Europe and has argued against the budget austerity implemented by former European commissioner Mario Monti’s outgoing government, including an unpopular property tax.