Pressure on EU to soften drive for austerity

The long EU push for austerity could be slowing down as EU leaders meet this evening for their two-day summit which is being billed as an ‘austerity versus growth’ event.

As the troika prepares a list of options to cushion Ireland and Portugal’s return to the markets, France and Spain, in particular, will be pushing for more time to cut their budget deficits while indebted Italy wants its low budget deficit acknowledged.

But with Germany still fixated on budget cuts, especially with the election looming in September, the hints are fairly well hidden in the draft conclusions prepared for the summit.

There are suggestions that the timescale for cutting deficits could be stretched a little if there is sufficient progress on structural deficits. And there is a veiled suggestion that those in a stronger position can increase spending a little.

But the austerity hawks are unlikely to be happy with this and IMF head Christine Lagarde will not be present to chide them, although ECB president Mario Draghi may make suggestions.

Taoiseach Enda Kenny will unwittingly find himself sitting in the middle of this debate as the hawks point to the very successful 10-year Irish bond sale and argue that because Ireland took the medicine and stuck to the targets, austerity works.

Normally France could be expected to moderate the German view at least a little before summits, but since the normal joint pre-summit preparations between Chancellor Angela Merkel and President Francois Hollande failed last month, there was no sign of another attempt for this meeting.

There will be a special meeting of leaders tonight from euro countries and tomorrow finance ministers will meet to discuss the troika report on Cyprus. They are expected to agree a bailout but the main issue will be whether private sector involvement of their broken banks will include depositors or not.

With all the tough oversight of national budget rules agreed and a single banking supervision structure under way, growth and jobs has become a growing mantra over the past few months, especially as unemployment figures increase and growth continues to be revised downwards.

But it is proving difficult to inject momentum into the eurozone economy that is technically in yet another recession, especially for those countries worst hit and being forced to cut spending and raise taxes.

There is no money in the EU’s coffers either, with member states cutting there too, not just for now but for the next budget 2014-2020. Even the much hyped €6bn for youth jobs is not new money and will come at the expense of other programmes.

The policies that would yield growth are continually falling foul of national interests, especially measures to complete the single market. The letter from council president Herman Van Rompuy as he prepared this summit was almost cynical in tone, as it reminded the leaders that they had failed to deliver on many of the issues.

The social partners — trade unions including Ictu and employers’ bodies including Ibec — will attempt to put recovery and the social dimension into the heart of the matter this morning when the usual Social Summit is held with the Taoiseach as Ireland holds the EU presidency, the Enterprise Minister Richard Bruton, Commission President Barroso and Mr Van Rompuy.

EU officials point out that leaders need to tell their ministers what direction they want them to go in.