- Associated Press - Monday, January 9, 2012

BERLIN — German and French leaders stressed Monday that boosting economic growth in the 17-nation eurozone is a priority, a recognition that the focus on austerity cuts is unlikely to get Europe out of its debt crisis.

Some analysts fear excessive austerity measures will take a heavy toll on weakening economic growth and push the eurozone into recession this year, in turn hindering the region’s deficit-cutting efforts.

Germany so far has been the biggest proponent of debt reduction as the key for financially weak countries to regain investor confidence. On Monday, however, Chancellor Angela Merkel acknowledged that austerity alone cannot resolve everything.

“Budget consolidation is one of the legs Europe’s future must be built on, but of course we need a second leg, and that is … the question of economic growth, jobs and employment,” she told reporters alongside President Nicolas Sarkozy.

They proposed that Europe compare countries’ labor-market practices and learn from the best and that already available European funding be used to support small and medium-sized companies and projects such as expanding broadband Internet networks.

They said they would consider speeding up payments into the eurozone’s permanent rescue fund, which is to start work this summer. They also urged a quick conclusion to negotiations among most European Union members on a new treaty meant to enshrine tougher fiscal discipline as well as talks on restructuring Greece’s debt.

The eurozone has been shaken over the past two years by worries over too much debt - first in relatively small economies like Greece, Ireland and Portugal, which needed bailouts, and now in larger countries like Italy.

Mr. Sarkozy acknowledged the gravity of Europe’s situation as the crisis enters its third year.

“The situation is tense, perhaps more so than ever in the eurozone’s history,” he said. Growth, he insisted, is “the priority today.”

Still, there was no sign of a significant shift in direction. Mrs. Merkel insisted that resolving the crisis will be a “step-by-step” process with no single spectacular solution.

“EU leaders have to understand that mere lip service to growth will not induce growth in the eurozone,” said analyst Sony Kapoor, managing director of Re-Define, a London-based think tank.

“Many of the more troubled economies are at serious risk of their debt snowballing out of control under excessive austerity,” he added.

Europe is working to hammer out a new treaty enshrining tougher fiscal rules, to which leaders agreed at a summit in early December. Mrs. Merkel said negotiations “are progressing well,” that the pact could be signed as early as the end of this month and at the beginning of March at the latest.

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