Think tanks urge eurozone to ease austerity

(PARIS) - Three European think tanks urged Thursday the eurozone to push or scale back its austerity policy in order to stimulate economic growth.

In presenting their first joint report on growth in the eurozone, the French Economic Observatory, Denmark's Economic Council of the Labour Movement, and Germany's Macroeconomic Policy Institute, argued that austerity has become "self-defeating".

The think tanks said synchronised cutbacks have amplified and spread negative effects across the eurozone, which has now fallen into recession.

"The reduction in economic growth in turn makes sustainability of public debt ever less likely," said their report.

"Thus austerity has been clearly self-defeating..." it said.

The think tanks said policymakers were mistaken in diagnosing large public deficits, which shot up to cope with the global recession in 2008-2009, as Europe's main problem.

Instead they said the eurozone's most pressing worry was trade imbalances between the 17 members sharing the common currency.

The think tanks said the response was lopsided in pushing austerity in southern eurozone countries, while little was done in Germany and Netherlands to reduce surpluses by increasing wages.

They urged policymakers to delay and spread out fiscal consolidation using flexibility allowed in EU rules.

"We are in a pressing situation" which leaves no time to contemplate a lengthy change to EU treaties, said Jerome Creel, one of the authors of the report.

The report noted eurozone states are required only to make annual consolidations of 0.5 percent of GDP on their structural deficits, when in fact they cut much faster.

While still respecting EU rules, eurozone states could recover 85 billion of the 130 billion euros in austerity they have pushed through for next year and add 0.7 percentage points to growth.

The OECD forecasts the eurozone economy will contract by 0.4 percent this year and by 0.1 percent in 2013.