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In Europe, Balancing Germany’s Austerity Push With Hopes for Growth

May 24, 2012 at 12:00 AM EST
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JEFFREY BROWN: There was no clear way forward today for European leaders, as economic problems reached new crisis points. The continent’s debt burden has now been joined by looming recession and deepening political divisions.

New data showed a worsening economic contraction throughout Europe today. The gloomy news came the morning after an inconclusive meeting of European leaders in Brussels. The summit reinforced the divisions between the two top eurozone economies, France and Germany, a main issue: how to balance Germany’s push for budget austerity with the new French government’s emphasis on economic growth.

GUIDO WESTERWELLE, German foreign minister: For the German, government austerity is not everything.

JEFFREY BROWN: In fact, Guido Westerwelle, the German foreign minister, acknowledged today a need for a balanced approach, including growth policies.

He echoed comments reportedly made behind closed doors in Berlin by Chancellor Angela Merkel. But Westerwelle said one proposal to ease the crisis, by issuing so-called euro bonds to lower interest rates in debt- laden nations, would make matters worse.

GUIDO WESTERWELLE: We think that we cannot solve a debt crisis by making it easier to take up new debts. And if we allow to make it easier to take up new debts, we do not solve the crisis. From our point of view, we increase the difficulties and the problems that we have.

JEFFREY BROWN: Left unsaid, euro bonds would mean higher interest rates in Germany, which has benefited greatly from its lower borrowing costs.

But Francois Hollande, the new president of France, in office just 10 days, has promoted the euro bond idea. He again stressed the need for growth as he headed into last night’s meeting in Brussels.

FRANCOIS HOLLANDE, French president (through translator): We must work based on economic challenges, like how to bring growth back, on financial challenges, how to bring back liquidity, but also on the political challenges. What do we want to do together in Europe? What kind of project do we have?

JEFFREY BROWN: Hollande was joined by Spanish Prime Minister Mariano Rajoy. His nation is imperiled by its enormous debt, but it’s largely the byproduct of a burst housing bubble, not public overspending, as in some other eurozone nations.

MARIANO RAJOY, Spanish prime minister (through translator): For Spain, the most urgent thing is that we need financing, we need liquidity, and we need sustainability for the debt. There are many countries which are making enormous efforts in order to control their public deficits and make structural reforms.

JEFFREY BROWN: And, as elsewhere, there is increasing public pushback in Spain, with unemployment at a crushing 25 percent. Miners went on strike today, and protesters gathered outside the parliament to denounce labor reform.

NEFTALI RODRIGUEZ, civil servant (through translator): This will put an end to all the workers’ rights that have been fought for 30 years. It leaves us workers sold out under the power of businessmen.

JEFFREY BROWN: But the businessmen are not immune either. This shop owner is shutting down after 40 years and liquidating his stocks of fabric and carpeting.

MANUEL AGUIRRE, business owner (through translator): Since 2009, it has been a torture. We have got to a point when this is impossible. Not only we do not have any profits, but we just can’t keep our activity, guaranteeing the salaries of our staff.

JEFFREY BROWN: It was announced yesterday that Spanish banks badly damaged by the housing bubble will undergo an extensive audit to ensure that they can survive. Banks in Greece saw a modified run on their holdings earlier this week, as their fate in the Eurozone was openly debated in Brussels and on the streets of Athens.

A once-unthinkable return to the traditional drachma currency was on many Athenians’ minds.

MAN (through translator): I prefer euro to drachma.

MAN: Euro is for Merkel, not for Greeks.

JEFFREY BROWN: Whether the Greeks stay with the euro may now rest on the outcome of elections next month. They were mandated after voting this month failed to produce a government.