A joint call for a growth strategy combined with austerity came out of the G8 summit on Saturday – even Germany recognised it officially – but between saying it in a communique and figuring out how to do it there remains an ocean of difference.
Far from the summit venue Camp David outside Washington, in Europe, anxious heads of companies complain that capital injections into banks are not reaching down to them. These key operators in the real economy want easier access to funding and tax breaks.
Antonio Ca’Zorzi, a French entrepreneur making smartphone applications, said jobs will depend on this: “Some fiscal reductions on investments in small and medium-sized companies could be interesting. These companies in France and other countries sustain employment.”
The Organisation for Economic Co-operation and Development report suggests things need to happen fast. Social costs are already awkward in eurozone countries and the forecast looks bleak.
Last year saw growth but this year GDP in the 17-country eurozone is projected to shrink – and rise by less than one percent next year. The OECD’s latest report says economic performance here compares poorly with other parts of the world.
Nearly half the eurozone countries are in the grip of recession, which is especially pronounced in Greece, Portugal, Spain and Italy – where it is expected to stretch into next year.
Zsolt Darvas at the Bruegel think tank said: “In most countries both (austerity and growth measures) are needed. It you look at Greece, for example, or Spain, these countries are so heavily indebted that certainly austerity needs to continue. I think that there is no choice. Growth will be really, really crucial but a major problem is that in Europe there are very limited instruments for supporting growth.”
However, some analysts and politicians feel existing resources are simply not being used, notably European backup.
Hans Martens at the European Policy Centre said: “We still have 82 billion euros of unspent structural funds and most of them are for countries that basically need it or most need it. So we need to find a solution to fire them off.”
Germany still does not like the sound of proposals for euro bonds, to jointly guarantee debt in any of the 17 member countries, though the OECD’s chief economist supported the idea.