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30 January 2012

Reuters: EU leaders struggle to reconcile austerity, growth


European leaders struggled to reconcile austerity with growth at a summit due to approve a permanent rescue fund for the eurozone, and put finishing touches to a German-driven pact for stricter budget discipline.

Officially, the half-day summit was meant to focus mainly on ways to revive growth and create jobs, at a time when governments across Europe are having to cut public spending and raise taxes to tackle mountains of debt.

But disputes over the limits of austerity, and about Greece's unresolved debt restructuring negotiations with private bondholders, may sour efforts to send a more optimistic message that Europe is getting on top of its debt crisis. Conservative Spanish Prime Minister, Mariano Rajoy, attending his first EU summit, said Madrid was clearly not going to meet its target of 2.3 per cent growth this year. That has raised big doubts about whether it can cut its budget deficit from around 8 per cent of economic output in 2011 to 4.4 per cent by the end of this year as promised.

European Commission President, José Manuel Barroso, hinted that Brussels may ease Spain's near-unattainable 2012 deficit target after it updates EU growth forecasts on February 23. Italy, rushing through sweeping economic reforms under new Prime Minister, Mario Monti, was rewarded with a significant fall in its borrowing costs at an auction of 10- and 5-year bonds, despite double-notch downgrades of its credit rating by Standard & Poor's and Fitch this month. But Portugal's slide towards becoming the next Greece - needing a second bailout to avoid chaotic bankruptcy - gathered pace as banks raised the cost of insuring government bonds against default and insisted the money be paid up front instead of over several years.

Full article



© Reuters


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