European ministers struggled to strike a balance on Friday between turning around a moribund eurozone economy with more spending and cutting bloated national budgets burdened with debt.
Eyes at a eurozone group meeting in Milan were especially on France, the bloc's second-biggest economy, and increasingly a European problem-child, mired in high unemployment, stagnant growth and ballooning public deficits.
The French government on Wednesday warned it would need until 2017 to work down its deficit to the EU limit of three percent of gross domestic product (GDP), the third year running Paris will ask Brussels for leniency.
"This is the start of the debate, not the conclusion," said Dutch Finance Minister and Eurogroup chief Jeroen Dijsselbloem, in a cautious note.
"France has to finalise their budget and we will see where they stand and whether they have done enough to respect the pact," he said.
France had promised Brussels it would return to three percent next year, but French Finance Minister Michel Sapin on Wednesday said the deficit in 2015 would come in at 4.3 percent, far off the mark.
"Obviously, France's partners want to work with us on this question," Sapin said after the talks.
"2014 is difficult for everybody," he added.
The Stability and Growth pact, a strict set of EU rules, was significantly strengthened during the debt crisis in an effort by Brussels, backed by Germany, to keep member states in line and avoid the busted budgets that brought on the crisis.
But the rules are now blamed for not only bringing economic hardship to once comfortable citizens, but also causing a return to recession, with growth in the 18-country currency bloc falling to zero percent in the second quarter.
- More investment needed -
European Economic Affairs Commissioner Jyrki Katainen admitted in an op-ed on Friday that a "balancing act" would be required, softening his usual hardline on budgets.
Defending the pact, Katainen said EU overseers "will take into account economic developments and the efforts each country is making" with "fair treatment for all countries, large or small, northern or southern".
But he also reiterated the Commission's firm stance that structural reforms, despite the political challenges, must be pushed through.
"Without real reforms, effectively implemented, we will not have sustainable growth and job creation," he said in a news conference.
Germany, the eurozone's most powerful country, also signalled that more needed to be done to fight the stagnating economy, despite its own zero-tolerance for public over-spending.
"We have economic conditions that demand more investment everywhere in Europe, in Germany too," German Finance Minister Wolfgang Schaeuble said.
On Saturday, when ministers from all EU countries meet, Germany and France will jointly introduce a working paper providing options towards boosting investment, with Berlin urging a focus on longer-term spending on infrastructure and research.
European Central Bank chief Mario Draghi, also at the talks, said a policy mix involving monetary, fiscal and structural policies was needed "to jump-start the economic recovery in the euro area".
However, he warned: "No monetary stimulus, indeed no fiscal stimulus, can be successful unless accompanied by the right structural policies -– policies that foster potential growth and instil confidence."
The tensions between budgetary hawks and the pro-growth lobby were underlined on Friday by an outburst from Italian Prime Minister Matteo Renzi.
With Italy now in its third recession in less than a decade and also beset by deflation, the ECB has this week cast doubt on whether Rome will meet its own target of reducing its budget deficit for this year to 2.6 percent of GDP.
Renzi responded on Friday via Twitter."We don't need lessons from Europe, but we do need the 300 billion (euros) investment," he tweeted, in a reference to incoming European Commission president Jean-Claude Juncker's call for a 300-billion-euro ($388 billion) programme.
Source: AFP