In Europe, widening doubt over austerity hits politicians hard


In France, critics of budget austerity have made their doubts personal, challenging President Francois Hollande and blaming German Chancellor Angela Merkel. (Carsten Koall/AFP/Getty Images)
April 29, 2013

With economic growth stuck near zero and unemployment rising, Europeans are increasingly impatient with the budget discipline imposed as part of the European Union’s showcase anti-crisis pact.

In France, the doubts have spread to President Francois Hollande’s Socialist Party and government, with officials suggesting that the debt-ridden continent needs to stimulate growth at all costs — even including more debt — if it is to climb out of the economic and financial crisis that began unfurling in 2008.

But conservatives, with German Chancellor Angela Merkel in the lead, have objected that abandoning the efforts to pare back deficits could lead to renewed pressure on the euro, the European Union’s common currency, and revive the sense of impending disaster that gripped the continent two years ago. Interest rates have stayed low for the past six months, they warn, but that could change quickly, with uncontrollable consequences for heavily indebted governments.

The budget strictures have contributed to stagnation or even a decline in growth in most of Europe’s major economies, hitting politicians hard when they return home to face their constituents and reinforcing their doubts. France will finish this year with 0.1 percent growth, E.U. economists have forecast, and Italy with minus 1 percent. Germany, they said, will be the exception, with 0.5 percent growth.

As a result, unemployment has soared in key economies, and according to E.U. economists, there is little hope for a significant recovery before 2015. France’s unemployment rate has hit nearly 11 percent — which was already the rate in Italy — while Spain’s recently rose above 27 percent. Again, Germany is the exception, with an unemployment rate a little over 5 percent, giving Merkel a sound platform for her preaching on budget restraint.

Interactive: How European governments got into this sticky situation.

“Italy is dying because of austerity alone,” that country’s new prime minister, Enrico Letta, complained in his first address to Parliament on Monday. “Stimulus policies can no longer wait.”

The critics get personal

France’s austerity critics have made the doubts personal, blaming the conservative Merkel and challenging Hollande to defy what a leaked Socialist Party report called her “egotistical intransigence.” The influential German leader, the report’s drafters charged, “thinks about nothing except the savings of account holders on the other side of the Rhine, the trade balance racked up by Berlin and her electoral future.”

The flare-up, in addition to its effect on relations with Merkel, added to a growing impression of disarray and lack of direction within France’s Socialist government one year after Hollande defeated the conservative president Nicolas Sarkozy.

At the urging of French Prime Minister Jean-Marc Ayrault, a former German teacher, the Socialist document was watered down to pin the blame on “the German right wing’s market-oriented policies” rather than Merkel personally.

But the anti-German theme was reinforced at the same time by Claude Bartolone, president of the National Assembly, who called on Hollande to mount a “confrontation” with Merkel on the question of budget balancing.

His appeal followed similar declarations by Consumer Affairs Minister Benoit Hamon, Housing Minister Cecile Duflot and Industry Minister Arnaud Montebourg, who all characterized the European Union’s budget discipline as mistaken and urged the president to put more emphasis on growth as a way out of the crisis.

Despite the outcry in France and elsewhere, Merkel and other German leaders have held firm to their insistence on balanced budgets, although they also have signaled flexibility on the speed with which their neighbors should shed their debts.

“You cannot create lasting growth simply by printing money or going into more debt. You have to gradually put in order what isn’t in order,” German Finance Minister Wolfgang Schaeuble told Deutschland Radio. “It is always a human temptation to shift your own problems onto others. For some, Germany is suitable for this at the moment, which is utter nonsense.”

Hollande’s dilemma

Eager to show he is in control, Hollande declared crisply that he and Ayrault are the ones who set France’s policies and that friendship with Germany is a pillar of French foreign policy. Coming to his side, French Finance Minister Pierre Moscovici added Monday that a confrontation with Europe’s most powerful economy would be “counterproductive” for France as well as for the European Union.

Although Hollande and his key ministers have espoused a market-oriented version of social democracy, many of his followers in the Socialist Party and further to the left remain wedded to the ideology of a predominant state role in the economy. This has produced a constant strain as the president seeks to abide by E.U. commitments and at the same time satisfy his left-wing constituency. As a result, criticism has buffeted him from the left and the right, adding to the impression that his leadership is weak.

A recent opinion poll showed that only 10 percent of those questioned believed that Hollande’s economic policy is right for France. Similarly, his personal popularity in the polls has sunk to 24 percent, a decline that even the unpopular Sarkozy never experienced.

Sarkozy had made a point of getting along with Merkel, frequently meeting with her on the eve of E.U. summits to make sure the bloc’s two predominant countries were on the same wavelength. The austerity treaty, for instance, was imposed on European governments in 2011 by Merkel and Sarkozy — dubbed “Merkozy” in the news media — who argued that the continent had no choice but to swallow such bitter medicine if the euro was to survive.

In contrast, Hollande has made a point of detaching his E.U. policy from that of Germany. In running for president, he promised to renegotiate the treaty to put more emphasis on growth. But once elected and facing the reality of budget numbers, he signed the treaty as it was.

That included the main feature: a pledge to bring down budget deficits to 3 percent of gross domestic product by 2014 and zero by the next year, with fines for those who fail. Although France is headed for a deficit of 3.7 to 3.9 percent, Hollande has asked for indulgence from the European Commission in Brussels and has repeated that his goal is still to meet the treaty requirement.

France is not alone in failing to meet the targets. Prime Minister Mariano Rajoy of Spain, for instance, last week got a two-year extension, to 2016, and has prepared a budget with a deficit of 6.3 percent of GDP. The worst-off countries — Greece, Portugal, Ireland and Cyprus — have little hope of meeting the requirement but are virtually assured of getting a bye from Brussels.

Michael Birnbaum in Berlin contributed to this report.

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