Spain, Germany defend EU austerity, economic reforms

(MADRID) - The leaders of Germany and Spain on defended the need for structural reforms and austerity measures in Europe, saying they were good for growth, despite calls France and Italy for a shift in economic policy.

"We must continue with policies of fiscal consolidation," Spanish Prime Minister Mariano Rajoy told a joint news conference with German Chancellor Angela Merkel in his northwestern home city of Santiago de Compostela.

"The public deficit and debt levels must be reasonable," he said before adding that the 28-nation European Union must continue to pursue economic reforms to revive the economy.

"Structural reforms are sometimes hard, they are sometimes difficult and complicated to explain but they are the ones that boost economic competitiveness and levels of well being and wealth and jobs," he said.

Merkel and Rajoy have been allies in steering Spain out of a recent financial crisis which threatened the whole eurozone, and in stabilising the finances of the heavily indebted country.

Rajoy passed painful economic reform measures under pressure from Germany and other European partners, which sparked noisy street protests against his conservative Popular Party government.

His government can claim to have overseen an improvement in Spain's economy, which emerged in mid-2013 from a double-dip recession sparked by a 2008 property crash, and is now enjoying a gradual pickup in activity.

"I share Mariano Rajoy's opinion regarding the combination of budget austerity and reforms," Merkel told the news conference, according to a Spanish translation of her remarks.

Since the start of the eurozone debt crisis in 2010, Germany has faced accusations that by failing to use its standing as Europe's biggest economy to do more to kickstart growth, it is leaving struggling partners in the lurch.

France and Italy, with the eurozone's second and third-biggest economies, have called for an easing of the fiscal austerity imposed by Germany.

French Economy Minister Arnaud Montebourg on Saturday criticised Germany's push for austerity measures and warned France would no longer "be pushed around" by the EU's economic powerhouse.

This led to French President Francois Hollande instructing his Prime Minister Manuel Valls on Monday to form a new government.