At Germany’s urging, the main strategy since the debt crisis erupted last summer has been austerity, seeking to shrink deficits at all costs to prevent the debts from spinning out of control. Should other nations join Greece in de facto bankruptcy, officials warned, the European Union and its common currency, the euro, would be threatened with collapse, triggering financial instability that could also infect the United States and Asia.
But a viewpoint has spread in recent weeks that austerity alone is not the answer and that it must be accompanied by reforms aimed at renewing growth. According to the latest E.U. figures, the 17 nations that use the euro face an average economic contraction of 0.3 percent in 2012 — and perhaps beyond — and are wrestling with a 10.7 percent unemployment rate.
The International Monetary Fund declared Tuesday that European policymakers should put more emphasis on growth despite the dangerous level of debt. The IMF’s new managing director, former French finance minister Christine Lagarde, urged such a shift on Germany in a speech Monday in Berlin but drew no promise of change.
Holding firm along with the Germans, the Dutch prime minister, Mark Rutte, told reporters here that European governments must stick to their debt-reduction pledges despite the rising complaints.
“The general remark I hear is that if times are tough, you don’t have to have austerity,” he said, according to the Associated Press. “Well, I don’t share that. Your government finances have to be up to scratch because it gives confidence to markets, to investors, to your own citizens to spend wisely. So we want to have our budget in order.”
Rejecting such caution, strikes and demonstrations protesting austerity measures and demanding a “social Europe” with fewer cutbacks broke out Wednesday, not only in hard-hit Greece but also in major cities of half a dozen European nations. In addition, 12 European leaders issued a pre-summit appeal for more attention to economic growth, which they said is the only way to move Europe out of its economic crisis.
“Growth is broken down, unemployment is rising, and citizens and businesses confront the most difficult situation in 12 years,” they said in an open letter to the E.U. Council president, Herman Van Rompuy, and the president of the European Commission, Jose Manuel Barroso.
Barroso, in a public response, agreed that more attention should be paid to getting European economies moving again. He outlined a series of reforms that he said would accomplish this goal in the long term but provided little hope for a quick return to growth while deficits were being pared and debts paid off.