Growing belief that growth should accompany austerity

Events are unfolding with increasing rapidity across Europe this week as the eurozone debt crisis looks like it may be about to come to a head, with debt-laden Greece under huge pressure to form a government which will sign the country up to an EU/IMF bailout plan. If it fails to do so, the once unspoken possibility of a country ditching the common currency is now being talked about openly. While the suggestion of Greece's exit from the euro is being officially dismissed as nonsense by European Union policymakers, the mere suggestion that the world could be heading for another 'Lehman Brothers moment' - one of the key events which precipitated the global financial crisis in 2008 - is spooking investors and creating great uncertainty and nervousness across the continent. It all comes as Francois Hollande was sworn in this week as the new French president. He immediately travelled to Berlin for talks with German chancellor Angela Merkel on their differing views on whether growth or austerity is the best way to tackle the debt problems of countries on Europe's periphery, including Ireland. M Hollande favours renegotiating the Fiscal Stability Treaty to include a growth compact to stimulate business activity while Chancellor Merkel's strongly held position is that austerity alone is the only path that can be followed to avoid piling more debt onto an already massive debt mountain. The grim growth statistics from Europe will only add momentum to the French president's election call for the continent to embrace a new growth strategy to run parallel with the EU's desire for strict budgetary discipline. It is clear that the overwhelming majority of Greeks want to remain in the eurozone, but do not want the fiscal handcuffs attached to the country's bailout. No matter how much it may huff and puff, Europe's paymaster, Germany, is not yet prepared to throw Greece out of the single currency because of the economic devastation that would be visited on ordinary Greek people, but also because it could well fracture the eurozone and spread financial contagion throughout Europe. The political instability in Greece forms a tense backdrop to the ongoing debate in this country concerning the Fiscal Treaty referendum in just over two weeks' time. Those advocating a 'yes' vote point to the example of Greece, with its mounting economic problems and growing social unrest, as a reason not to follow this route. The vote on the Stability Treaty is just one part of the solution to the debt crisis, however. It is but one step on a path to economic stability. First of all, we need to ensure we have access to the backstop of the European Stability Mechanism (ESM), should it be needed, so that international investors will have confidence in the country and the government can continue to pay the bills. The challenge then is for the country - and Europe - to imaginatively and cohesively work together to rebuild our economy in a realistic and balanced way. The same needs to happen in other countries like Portugal and Spain. That, after all, was the idea first mooted by EU founding father Robert Schuman in 1950 when outlining his dream of a Europe based on common solidarity in pursuit of peace and prosperity. It is also worth remembering that the era in which Schuman spoke was just five years after World War II had devastated the continent of Europe. Just as Europe had to rebuild itself in the aftermath of the war, governments and policy-makers are today faced with rebuilding Europe in the wake of the worst economic and financial crisis since the Great Depression. And in a similar vein to growing calls across Europe for a growth clause in the Fiscal Treaty to stimulate modern-day economies, it took the Marshall Plan in the years after WWII to help rebuild shattered countries with a massive investment programme that allowed Europe get back on its feet. If Francois Hollande's idea of combining a major stimulus package with the type of fiscal discipline demanded by Angela Merkel can find favour in Berlin, it would certainly sweeten the pill for those wavering voters unsure which way to cast their ballots on 31st May.