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 With a U.S.-style bond-buying plan by the European Central Bank off
the table for now, the bloc has few options, leaving other euro zone
leaders to tread a careful line between the opposing growth and
austerity camps.
"It's very important to find a balance between growth and
stability," Finland's Prime Minister Alex Stubb said as he arrived
at the second day of an EU summit at which ECB President Mario
Draghi will address leaders.
After the euro zone's revival came to a halt in the second quarter,
France and Italy want to shift course away from the spending cuts
that marked the bloc's response to 2009-2012 crisis, but Germany
says debt discipline must continue.
The euro zone's poor performance is becoming a wider concern, with
the United States and the International Monetary Fund worrying that
the bloc that makes up a fifth of the world economy is a drag on
global prosperity.
The debate is complicated by EU rules that seek to keep country's
public finances in order and Germany's promise to balance its books
next year for the first time since 1969.
The European Union's top economic official renewed the charge
against Berlin, saying that without investment the future was bleak
for Europe's biggest economy, even if it is stronger than most.
"All euro area countries have shortages in potential growth,
including Germany," said Jyrki Katainen, the European Commissioner
who will become the bloc's growth tsar from November, tasked with
bringing down near record unemployment and sinking investment.
"Germany's potential growth is currently 1.5 (percent). This is far
too low," he told reporters.
GRAND BARGAIN?
Diplomats say the euro zone may be moving toward a bargain where
France and Italy, the second and third biggest euro zone economies,
make new commitments to reform in return for more spending room in
their budgets.
Italian Prime Minister Matteo Renzi is proposing tax cuts to get
households spending again, as his country is suffering its third
recession since 2008.
Jeroen Dijsselbloem, who chairs the meetings of euro zone finance
ministers, said that reforms were key.
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"Paris and in Rome are quite ambitious in terms of reforms and
modernizing their societies, the government and the economy,"
Dijsselbloem said. "I think that's crucial."
The European Commission, which acts as a budget policeman for the
euro zone, has until next Wednesday to reject any 2015 budgets with
France's in the spotlight.
Even if it does so, changes made by Paris and Rome are likely to be
small, officials say.
"We need to look at each case separately, keeping in view the
Stability and Growth Pact rules and the need to maintain a
responsible fiscal policy," said Lithuanian President Dalia
Grybauskaite, whose country joins the euro zone next year.
"Austerity needs to be in place, and in parallel we need to invest,"
she said.
Such declarations on budget discipline could provide cover for the
ECB to do more to fend off the deflation that would make it even
harder for the euro zone to bring down its debts.
Many investors want to see the ECB launch a U.S.-style
sovereign-bond buying program that could act as a proxy for a
government stimulus. But Draghi faces resistance from some, notably
Germany, because the euro zone is banned from directly financing
governments.
(Additional reporting by Paul Taylor and Philip Blenkinsop. Editing
by Mike Peacock)
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