Eurozone leaders have urged governments to focus on growth amid fears about the negative impact of austerity measures.
European Central Bank President Mario Draghi called for a “growth compact”, to go with the balanced-budget pact agreed last year.
German Chancellor Angela Merkel and French presidential candidate Francois Hollande echoed that Europe needs more economic growth.
But none said what exactly they are willing to do to boost growth.
Adding to tensions, the Netherlands’ government collapsed over last-minute disagreements about finding billions of euros in austerity cuts.
Speaking to the European Parliament, Mr Draghi acknowledged that austerity in Europe – which has brought waves of protest in Greece, Spain and beyond – has curtailed growth without doing much to reduce fears that governments may be unable to repay their debts.
Francois Hollande has made it clear that he will not sign the pact until it contains proposals for growth.
The problem is the governments of Finland Greece and Portugal have already ratified this text, the Irish are due to hold a referendum on 31 May.
Mr Hollande says the day after the vote he will send a memo to all European governments. “I hope there will be re-negotiation,” he said. “Could there be an alternative text on growth added to it? That will form part of the discussions,” he said.
Yesterday, the German Foreign Minister Guido Westerwelle told reporters the pact was agreed – and holds.
“It will not be made dependent on election results,” he said.
Mr Hollande’s statement seems to put France and Germany on a collision course – or perhaps it offers both
He said austerity – spending cuts and tax rises – “has been undertaken and is starting to reverberate its contraction effects, and we haven’t seen the benefits”.
“What is most present in my mind is to have a ‘growth compact’,” the ECB boss said.
Mr Hollande said that, if elected, he will renegotiate the fiscal pact. Signed by 25 of 27 European Union states, it aims to bring about much closer integration of budget policy to try to prevent excessive debts accumulating.
The UK and Czech Republic did not sign up to it.
Mr Hollande wants to incorporate measures such as pooling European debt to finance infrastructure projects and a financial transactions tax.
“Budgetary responsibility? Yes. Austerity for life? No,” he said.
These proposals have already been discussed and dismissed many times by Mrs Merkel.
On Tuesday, German Foreign Minister Guido Westerwelle told reporters the pact was agreed and not up for renegotiation. “It will not be made dependent on election results,” he said.
Mrs Merkel also called for growth, but in different terms from the man who may soon be her French counterpart.
“In Europe, we are called on to overcome the sovereign debt crisis.
“On one hand, that can be done with a sustainable fiscal policy… but that is not a sufficient method of overcoming the crisis, because we also need growth.”
“We need growth… in the form of structural reforms, as European Central Bank President Mario Draghi said,” she added.
But Mrs Merkel warned that did not mean more stimulus programmes.
Mr Draghi testified in Brussels that the structural reforms required for governments to make their economies competitive once again would necessarily entail some pain.
But he made clear that it was now up to governments and banks to use the available time to strengthen the banks’ finances.
“Now the ball is entirely, squarely in the court of governments and banks,” he said,
The ECB has provided more than 1tn euros in three-year loans to eurozone banks since last December, in order to head off a major banking crisis that threatened to erupt last November.
Separately, a survey of eurozone banks allayed fears of a credit crunch.
Only a net 9% of 131 banks tightened their lending conditions in the last three months, according to the European Central Bank’s latest quarterly survey.
The data suggests that emergency loans provided by the ECB have helped stave off a sudden curtailment of lending. –http://www.bbc.co.uk/news/business-17839985