Analysts say that too much austerity may backfire on nations like Greece that are deep in recession
A Greek policeman removes a cross reading 'Dignity', that was placed by protesters in front of the parliament in Athens on April 8. With recession looming in debt-struck Europe, governments face growing pleas to move away from all-out austerity and inject growth policies as leaders struggle to revive their economies.
With recession looming in debt-struck Europe, governments face growing pleas to move away from all-out austerity and inject growth policies as leaders struggle to revive their economies.
European Union leaders used two summits this year to begin discussions on how to jumpstart growth and create jobs after being forced to focus on measures to counter the debt crisis for two years.
Bailouts of Greece, Ireland and Portugal have been accompanied by unpopular budget cuts and structural reforms to convince markets that Europe is getting rid of excessive deficits and debts.
In addition, 25 of the 27 EU states signed a German-driven fiscal pact that will force nations to enshrine balanced budgets in law. Portugal became on Friday the second nation after Greece to ratify the deal, which requires 12 such ratifications to come into force.
But some analysts say that too much austerity may backfire on nations like Greece that are deep in recession. A slew of bad economic data indicate that the 17-nation eurozone is likely entering a new recession.
The frontrunner in the upcoming French presidential election, Socialist candidate Francois Hollande, wants to renegotiate the fiscal pact if he is elected in order to insert a growth agenda into the treaty.
Derided as naive by conservatives, Hollande has won a surprising ally, the Financial Times.
"Political consensus behind such a growth agenda will not be easy to build. But as economic conditions get tougher, the high priests of fiscal austerity are bound to become more isolated," the daily wrote in an editorial
"It is therefore encouraging that an increasing number of politicians, including Francois Hollande, the French presidential hopeful, are calling for a 'European growth strategy.'"
Hollande, who leads French President Nicolas Sarkozy in opinion polls ahead of the first round on April 22, has allies in the German opposition who complain that the pact championed by Chancellor Angela Merkel lacks any growth strategy.
But Hollande would likely have to lower his ambitions since nations have begun to ratify the treaty, which was backed by nearly all socialists in the Portuguese parliament on Friday.
"It is most likely that quickly after the election, the future president, if it is Francois Hollande, will take a more realistic approach and will opt for an additional text to the pact centered on growth," a European negotiator close to the matter told AFP.
"The left, not only in France, considers the budget pact as an austerity pact. We must pave the way for a solution and Angela Merkel understands this because we must avoid this being blocked for months," the source said.
While Lisbon backed the budget treaty, Portuguese President Anibal Cavaco Silva joined calls for a shift to a growth strategy to "face up to the current economic stagnation."
Despite pledges that growth policies will come, few solutions are visible so far. And as is often the case in the 27-nation EU, governments are divided over how to tackle the problem.
Twelve nations led by Britain's Prime Minister David Cameron and Italian counterpart Mario Monti say the path to growth lies in further opening the single market and reforming labour markets.
The Franco-German team of Merkel and Sarkozy see the solution through deeper integration of fiscal policies.
"Europe has been been talking too much about growth for too long, while doing too little," the Financial Times said. "It is time to act before it is too late."