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France calls on Europe to ease off austerity

Thursday - 3/7/2013, 12:35pm  ET

Goodyear employees scuffle with riot policemen during a demonstration against layoffs, in front of Goodyear headquarters in Rueil Malmaison, west of Paris, Thursday March 7, 2013. France has yet to hit bottom. The unemployment rate in Europe's second-largest economy rose again in the last quarter of last year to 10.6 percent, putting new pressure on President Francois Hollande's rollout a controversial labor-market reforms.(AP Photo/Remy de la Mauviniere)

JUERGEN BAETZ
Associated Press

BRUSSELS (AP) -- France has called on fellow European nations to ease off on painful austerity policies to give the economy some breathing space and avoid social upheaval.

Continuing a strict course of spending cuts and tax increases would only "nourish a social crisis that leads to populism," French Finance Minister Pierre Moscovici warned Thursday.

"There is no alternative to starting a path that will lead to a return of growth," he added, speaking at a conference of the European Parliament's group of center-left parties in Brussels.

France's appeal comes as the three-year debt crisis in the group of 17 European Union countries that use the euro is easing. Investors and financial markets have grown calmer in the wake of political and economic reforms and a pledge by the European Central Bank to do whatever it takes to defend the common currency.

But the austerity cuts made to restore confidence in financial markets have helped push the region into recession and increase unemployment to record highs. Voters in several crisis-hit nations have protested such EU-led austerity by supporting euroskeptic parties, most recently in Italy.

Moscovici stressed Italy's election result "was a message" that insisting on the current pace of budget cuts and structural reforms without a credible growth strategy is not sustainable and will ultimately backfire.

The minister reiterated his demand that the eurozone should have its own budget to finance initiatives favoring job creation and growth. Germany, which together with France makes up almost half of the bloc's economic output, has signaled it is open to that idea, but Chancellor Angela Merkel has floated a maximum ceiling of about EUR15 billion ($19.52 billion) -- a small sum compared to the bloc's annual GDP of EUR10 trillion.

Moscovici provided few other details on what growth-friendly initiatives or policies he wants Europe to pursue, but vowed that France will push for a substantial debate on the matter at next week's summit of the European Union's 27 leaders.

"It has to be done in a way that people, citizens can recognize the reform process, can support it finally and can see some hope, some light at the end of the tunnel, which is not the case today," said the European Parliament's center-left caucus leader, Hannes Swoboda.

He warned that continuing the harsh enforcement of European debt rules will not only worsen the recession, but eventually threaten Europe as a whole.

"More and more citizens today identify Europe with austerity, unemployment and perhaps even authoritarian dominance from outside," Swoboda said.

Moscovici acknowledged France will miss its deficit reduction target this year as the economy is expected to stall, but still aims to get it below the EU's limit of 3 percent of economic output next year.

"Under the current conditions it would worsen the recession to push toward the 3 percent (ceiling)," he said. France hopes the EU Commission, the bloc's executive arm that monitors compliance with debt rules, will grant the country a delay of one year to reach its deficit target, he indicated.

The European Commission last month lowered its 2013 economic growth forecast for France to a meager 0.1 percent.

New data on Thursday also showed that the unemployment rate in France is still rising. It was up to 10.6 percent in the fourth quarter of 2012 from 10.3 percent in the previous three-month period, according to France's statistics agency.

In Britain, however, Prime Minister David Cameron gave a stern defense of his government's austerity policies of tough spending cuts and tax increases.

"The very moment when we're just getting some signs that we can turn our economy round and make our country a success...is the very moment to hold firm to the path we have set," he said, pointing to a recent uptick in exports and lower unemployment.

The British economy contracted by a quarterly rate of 0.3 percent in the last three months of 2012, and another dip is expected in the first quarter of 2013, meaning that Europe's third-largest economy will be in recession for the third time in a little over four years.

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AP writer Cassandra Vinograd in London contributed reporting.

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Juergen Baetz can be reached on Twitter at http://www.twitter.com/jbaetz


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