EU leaders meet amid austerity debate

Europe's austerity debate
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Story highlights

  • Debate over the austerity-led response to the eurozone crisis is intensifying
  • European leaders arrived in Brussels on Thursday for a summit
  • The gathering is not expected to change the EU's economic policy course

European leaders arrived in Brussels on Thursday for a summit where the intensifying debate over the austerity-led response to the eurozone crisis was moving to centre stage even though the gathering was not expected to change the EU's economic policy course.

Heading into the summit, prime ministers from the eurozone's north continued to urge a continuation of belt tightening while those from its struggling southern periphery sought an acknowledgment that more needed to be done to stimulate growth.

"There are no shortcuts to creating new jobs and growth in a sustainable manner," said Jyrki Katainen, the Finnish prime minister, as he arrived in Brussels. "Structural reforms might not bear fruit overnight, but are the best sustainable economic stimulus. Accumulating excessive debt is not."

Conversely, outgoing Italian prime minister Mario Monti, whose trouncing in last month's elections sparked much of the recent debate, said he would urge leaders to "reflect" on his country's vote -- where anti-austerity candidates took more than half the vote -- and called on them to be flexible in their application of EU budget rules.

"Margins for flexibility were introduced in European budget rules and we will ask that they can be used," Mr Monti said on his arrival.

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According to a draft communiqué distributed to delegations as they arrived for the summit and seen by the Financial Times, summit leaders retained language despite objections by adherents to the austerity policies calling for "short-term targeted measures to boost growth and support job-creation."

Some diplomats said they expected a spirited debate over the wording, which some northern countries regard as a signal to support more debt-fuelled stimulus spending.

Southern eurozone members are stuck in the deepest recessions in a generation, mass unemployment, a credit crunch particularly for small businesses and, in some countries, deep political turmoil.

Talks between Athens and its international lenders broke down after a request by Antonis Samaras, the Greek prime minister, for changes to austerity measures were rejected by the EU and International Monetary Fund. Athens is resisting compulsory lay-offs as it tries to slim down its civil service, a requirement under its bailout programme.

Italy appears no closer to forming a government after elections in which 55 per cent of votes went to parties opposed to austerity measures demanded by the EU.

But the German government has insisted in the run-up to the summit that eurozone governments stick to their austerity plans. Berlin said on Wednesday that it would balance its budget in 2015, a year earlier than required under its fiscal rules. It also unveiled plans to cut spending to trim the deficit next year, despite appeals from other eurozone members to expand demand.