European Union countries must find ways to boost growth at the same time as putting public finances in order, and EU leaders will meet on May 23 to discuss how to achieve these twin aims, top EU officials said on Tuesday.
The 17 euro zone countries want to regain market confidence in their public finances after a two-year sovereign debt crisis boosted borrowing costs for most, cut off Greece, Portugal and Ireland from markets and now threatens to engulf Spain.
But some policymakers and economists say the euro zone has been too focused on fiscal consolidation, which hurts economic growth, making debt sustainability even harder and threatening to start a vicious circle of austerity and shrinking output.
The European Commission said on Tuesday there was really no choice between austerity or growth, because both were necessary.
"The debate of consolidation versus growth is a false debate," EU Economic and Monetary Affairs Commissioner Olli Rehn told a news briefing.
"In the current economic situation of low growth and high debt there is no choice - we need to pursue both simultaneously."
After an anti-austerity backlash by voters in Greece and France on Sunday, European Council President Herman Van Rompuy called a summit of EU leaders for May 23 to discuss "the European growth agenda", his letter to leaders showed.
The informal dinner on May 23 is to lay the ground for another meeting on June 28-29 when leaders are to take formal decisions on their growth and budget consolidation strategy.
DEBATE GAINS MOMENTUM
The discussion has been given new momentum by the victory in presidential elections in France of Socialist Francois Hollande, who campaigned to shift focus from austerity to growth.
And in Greece's parliamentary elections, parties supporting an EU/IMF austerity package to make the country's debt sustainable failed to win a majority, with resulting uncertainty over who might be able to form a government in Athens.
The balancing act the EU faces is difficult because, unlike debt-financed government spending, structural reforms that increase economic growth take time to produce results, and investors are impatient.
Less ambitious fiscal consolidation, leaving more tax money to fuel growth, would be quicker, but would undermine efforts by the euro zone to show it is serious about putting its fiscal house in order and probably damage investor confidence.
"Fiscal consolidation must be pursued in a growth-friendly and differentiated manner," Rehn said.
This means those EU countries with sound public finances should allow social safety nets built into their economies, like spending on unemployment benefits, to cushion the impact of the economic slowdown.
But countries under close market scrutiny, like Greece, Ireland and Portugal, as well as Spain and Italy, should focus on restoring investor confidence through tough fiscal policy.
To do something quickly for growth, the Commission is proposing to boost the capital of the European Investment Bank - which finances infrastructure projects in Europe - by 10 billion euros ($13 billion).
This would increase the EIB's lending capacity by 60 billion euros and have a total investment impact, together with private financing it would attract, of 180 billion euros.
The Commission also wants to front-load spending on infrastructure in the European Union's budget and to use project bonds - EU debt issued to finance specific projects.
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