Brussels signals easing of fiscal rules

Financial Times
May 4, 2012

Senior European officials are championing an investment pact to stimulate economic growth in the eurozone as voters in France and Greece look set to punish leaders who have backed tough austerity measures.

In a marked shift of emphasis, Olli Rehn, the EU’s top economic official, will on Saturday call for additional government spending for large-scale infrastructure projects, arguing there is not sufficient private-sector demand to create jobs. Unemployment has surged in several eurozone countries, hitting its highest levels since the creation of the single currency and fuelling voter anger.

The commissioner will also give a clear signal that he is willing to loosen the EU’s tough new budget rules for countries like Spain, which has been forced to slash public spending in the face of a sharp economic downturn to meet Brussels-mandated deficit levels.

“The stability and growth pact is not stupid,” Mr Rehn will say, according to a draft of his address seen by the FT. “Yes, the EU fiscal framework is rules-based … but at the same time, the pact entails considerable scope for judgement when it comes to its application.”

The European commission’s new push could antagonise Berlin, which has rejected new public money and is already fending off calls for more growth-oriented policies by François Hollande, the frontrunner in Sunday’s French presidential contest.

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