The question is whether the bloc can come up with a strategy that convinces sceptical financial markets while keeping debt on a downward path.
For many months, the mantra has been that struggling eurozone countries must cut budget deficits and carry out deep structural reforms — to labour markets, pension systems and via privatisations — to boost competition and stimulate growth.
The problem is that cutting spending and overhauling economies when they are already contracting tends to create a downward spiral, with the slowdown deepening and deficits becoming ever harder to cut as a proportion of output.
What is more, the structural reforms EU policymakers are demanding — and which the likes of Italy, Spain, Greece, and Portugal are battling to implement — can take years to deliver a growth benefit, while in the short-run they tend to lead to social and political upheaval.
What the EU needs instead, economists and many policymakers agree, are measures that can stimulate growth more immediately in a region responsible for a fifth of global output.
As one EU official put it: “Enough of the debt fetishism, it’s time for a proper stimulus.”
Nobel-prize winning economist Joseph Stiglitz added his voice to the debate last week, calling Europe’s debt consolidation strategy “suicidal” and pointing out that a pure austerity programme had never restored health.
A focus on investment is attractive. While Italy was left unscathed after deferring its balanced budget goal by a year, the punishment meted out to Spain by the bond market, driving its borrowing costs higher since it raised its 2012 deficit target, shows significant loosening of fiscal policy is fraught with danger.
“Even if governments were seriously contemplating significantly relaxing fiscal policy, such a change of tack would be counter-productive,” said Deutsche Bank analysts Mark Wall and Gilles Moec.
In recent days, the bare bones of a strategy to stimulate growth have started to come together, with the intention of launching it at an EU leaders’ summit in June.
The main focus is on raising the capital of the European Investment Bank (EIB), the EU’s long-term lending arm, to allow it to make bigger investments in infrastructure projects and related areas.
EIB-financed EU projects were worth around €70bn in 2010, with lending made on the basis of relatively small paid-in capital. By boosting the paid-in capital by only €10bn, the bank’s lending could be greatly leveraged, delivering extra investment of up to €180bn.
Olli Rehn, the European commissioner for economic and monetary affairs, set out a proposal along those lines to EU member states in April, and the idea will be discussed by ministers this month. Officials say the EIB, which has resisted the move in the past, is now prepared to go along.
“I made a call on EU member states to increase the capital of the EIB, which would be the most convincing way of providing funding for necessary investment in infrastructure and innovation in Europe,” said Rehn.
Such an initiative could revive growth at the margins, but does not look like a game changer.
Put it against the more than €1trn created by the European Central Bank — which may have averted a credit crunch but has done little to revive a eurozone economy poised to slide back into recession — and the numbers look small.
“Complementing austerity with some federally-funded investment schemes is becoming consensual, but we don’t expect any quick sizeable effect on growth,” said Wall and Moec.
At the same time, the European Commission, the EU’s executive, is exploring ways of redirecting EU structural funds, which are paid to poorer member states to help them improve their infrastructure, to deliver a quicker growth lift.
The EU’s long-term budget set aside nearly €350bn for structural and cohesion funds between 2007-2013, but only a fraction of that — a few billion — is likely to be redirected under the Commission’s plan, which is still taking shape.
Politically, there is no prospect of giving eurozone members much leeway on debt just as new fiscal rules to ensure deficits are kept to a common minimum are being established.
While it remains to be seen what EU leaders can come up with — and there is little at this stage to buoy financial markets to — there is certainly pressure to shift the rhetoric towards a more pro-growth agenda.
ECB president Mario Draghi has talked about a “growth compact” and, at the weekend, German chancellor Angela Merkel backed a boost in EIB capital.
Herman Van Rompuy, the president of the European Council and chairman of EU summits, wrote to EU leaders last week urging them to find common ground on a range of issues that could offer an economic stimulus.
“The emphasis should now shift increasingly to prioritising measures that can boost growth and jobs and a return to sustainable growth,” he wrote, adding that it may be necessary to hold an informal summit between now and the next planned summit on June 28-29.
Officials indicate that extra gathering is likely to be held at the very end of May or the first day of June, leaving leaders four weeks to flesh out their growth-boosting ideas.