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EU Offers Crisis-Hit Members Wiggle Room on Deficits

Georges Gobet | AFP | Getty Images

European leaders meeting in Brussels on Thursday hinted that some countries could be given more time to meet their deficit goals as they address high unemployment and seek to ease the pain of tough austerity measures.

The president of the European Commission told CNBC that while countries should pursue reforms and meet the deficit targets set under EU rules, there was room for maneuver if countries showed that they were making an effort to implement reforms.

"The stability and growth of the EU has incorporated the necessary flexibilities, so provided the members states make the structural adjustments required, we proposed the extensions to fulfill the debt target as we've done in Greece two times, in Portugal, in Spain, and may do so again, provided that countries make a structural effort...and France too" Jose Manuel Barroso said.

(Read More: French Should Worry About France, Not Italy)

While these reforms were taking shape, it was important to support the issue of youth employment, he said, adding that the Commission would mobilize funds to help companies employ young people.

"Now we are mobilizing…European social funds to help young people find apprenticeships, traineeships in companies in small and medium enterprises that might need that kind of help. It's better to have this kind of solution for the short term than simply to accept this very high levels of unemployment.

The topic of unemployment in the euro zone is high on the agenda at the EU summit, with a particular focus on youth unemployment. In January, 23.6 percent of young people in the EU under the age of 25 were unemployed, up from 22.4 percent a year before. In Spain and Greece up to 50 percent of young people are struggling to find work as their economies flounder.

(Read More: Could Europe's Crisis Be Over by End 2013?)

"Of course, we know well that the structural solution for youth unemployment, and for employment in general, has to do with the health in the economy and the reforms to increase competitiveness [but in the meantime} while these reforms take place, it is important to support through target policies these very important issues of youth unemployment," he said.

EU leaders continue their summit in Brussels on Friday. Countries such as France who have said that they will miss the target of a budget deficit below 3 percent of gross domestic product (GDP) have been granted some leeway.

Germany, however, is concerned about allowing countries such as France and Italy more leeway in stimulating their economies.The country fears that the course of deficit reduction and austerity in order to regain growth will be replaced by increasing deficits and borrowing.

To push the point home, Germany reiterated its own commitment to budget consolidation by releasing its 2014 budget early. It included 5 billion euros worth of spending cuts. The country's finance minister, Wolfgang Schaeuble, said on Wednesday that the move was a "strong signal for Europe."

European Parliament President Martin Schulz told CNBC that Europe needed a mixture of budget consolidation and growth measures if it is to return to growth and regain the trust of its citizens.

"Unilateral cuts in budgets and austerity policies alone will never lead to an economic re-launch. What we need is a combination of budgetary discipline- the spirit of the German approach- and a strategic investment in growth," Schulz told CNBC in Brussels.

"You can never regain trust without winning the confidence of the citizens and what we are seeing outside the building here is that people more and more mistrust the EU as a Union not caring about their individual situations, not just in southern European countries, but all over Europe," he said.

As the stand-off between countries advocating the easing of austerity and those pushing for continued structural reform continued, one analyst told CNBC that it was hard to see how Europe was going to return to growth with European Central Bank policies found wanting.

"At the moment, the only people that win are the bondholders, the population and the economy doesn't win," Michael Gallagher, director of Research at IDEAGlobal, told CNBC.

"If you look at successful fiscal consolidations, what you need is very easy monetary policy that gets two percent growth, two percent inflation and four percent overall nominal GDP. If you judge the European Central Bank on the basis of that, the ECB has failed every year since 2008 to achieve 4 percent nominal growth," Gallagher said. "The ECB is not easy enough...so we're locked in a slow growth, slow inflation environment which is somewhat unstable," he added.

By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

Contact Europe: Economy

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