Merkel resists calls to put growth before reforms

Thu May 10, 2012 9:29am EDT
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By Stephen Brown

BERLIN (Reuters) - Chancellor Angela Merkel rejected calls from her centre-left opponents in Germany and Europe for economic stimulus policies that rely on new debt, warning parliament on Thursday that "growth on credit" would just tip Europe deeper into crisis.

Since the election of Socialist Francois Hollande as French president on Sunday, Merkel has come under pressure to relax the austerity measures that, as leader of Europe's biggest economy, she has prescribed as the remedy for the euro zone debt crisis.

But Germany's centre-right leader, standing her ground, told the Bundestag (lower house of parliament) that reducing debt and encouraging growth were "twin pillars" of European policy, rather than alternative paths.

"Growth through structural reforms is sensible, important and necessary. Growth on credit would just push us right back to the beginning of the crisis, and that is why we should not and will not do it," said Merkel, who is expected to get a visit from Hollande next week on his first foreign trip as president.

Emboldened by Hollande's victory, Germany's centre-left opposition is calling for a "growth pact" for Europe to be added to the German-led fiscal pact for budgetary discipline which has been signed by 25 European Union countries but has yet to be formally ratified by many parliaments.

Speaking after Merkel, Frank-Walter Steinmeier, parliamentary leader of the Social Democrats (SPD), accused the government of "political lethargy" and said Germany had weathered the euro crisis well because previous governments had introduced "a blend of austerity and growth policies".

But Merkel has insisted since Hollande's victory that there is no alternative to the debt- and deficit-reduction programs currently being demanded from countries like Greece in return for bailouts, if they are to return to sustainable growth.

"So much has been discussed, from to euro bonds to leveraging, they are all hailed as miracle cures then deemed unsustainable," Merkel told parliament. Hollande said just before his second-round victory that he wants to reopen the discussion on common euro zone bonds with Berlin.   Continued...

German Chancellor Angela Merkel attends a debate after delivering a statement on her government policies ahead of the upcoming G8 and NATO summits in the German lower house of parliament, the Bundestag, in Berlin, May 10, 2012. REUTERS/Thomas Peter