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Britain, Netherlands call for EU to focus on growth

By Robin Emmott

BRUSSELS (Reuters) - Britain, the Netherlands, Italy and nine other countries called on Monday for Europe to shift its focus from tough budget cuts towards measures to create growth as the region looks headed for its second recession in three years.

Germany and France, the euro zone's leading powers, did not sign the letter addressed to top European Union officials, which appeared to challenge the German-led drive for austerity first and likely signals a desire among other EU members to show they can also set the agenda outside the Franco-German axis.

It was the second time in a month that Italian Prime Minister Mario Monti, an economist praised by German Chancellor Angela Merkel for his strong measures to handle Rome's own debt crisis, has criticized the north European approach on budgets.

"The crisis we are facing is also a crisis of growth," said the letter to the President of the European Council, Herman Van Rompuy, and the President of the European Commission, Jose Manuel Barroso.

The letter, advocating greater opening of the EU's internal market for services, was drawn up by Britain and the Netherlands and signed by the leaders of Italy, Estonia, Latvia, Finland, Ireland, Czech Republic, Slovakia, Spain, Sweden and Poland.

"We gave it to many governments, including the French and the Germans, but our cooperation continued with those who showed an interest to go ahead," Enzo Moavero, Italy's European Affairs Minister, told reporters in Brussels.

A German government official said Berlin was not against the call for growth, and could not know of every letter circulating in EU capitals and in Brussels.

"We basically share the proposals described in the letter," the official said.

French diplomats were not immediately available for comment, but Paris is likely the most uncomfortable with the liberalizing agenda in the midst of a presidential election campaign.

Euro zone finance ministers are expected to back a second bailout for Greece on Monday bringing to a close months of wrangling over a deal to prevent a disorderly default.

While Greece's problems have been a focus of the crisis, another major aspect has been a sharp slowdown in growth across the bloc as countries cut spending to improve their fiscal accounts in order and as news of the troubles hurt confidence.

SHRINKING OUTPUT

In a speech in Milan, Monti said now the most acute part of the Greek crisis appeared to be over, attention must turn to growth.

"I believe that on the occasion of the EU Summit of March 1-2 we will see a European Union that, closed the most dramatic phase of the Greek parenthesis, will concentrate its energy on growth," he said.

The economies of both the 17-nation euro zone and the wider 27-nation EU shrank 0.3 percent in the last three months of the year. Despite signs of a stabilization this year, analysts in a Reuters poll predict the euro zone will shrink 0.4 percent in 2012, returning to weak growth in 2013.

That is in line with the International Monetary Fund's forecast for the euro zone of a 0.5 percent contraction in 2012.

The EU's top economic official, Olli Rehn, said late last year that implementing single-market reforms -- from creating a European energy market to ending national copyright regimes -- would increase total EU output by more than 3 percent by 2020.

Rehn has defended austerity measures demanded by the Commission that are aimed at rebuilding confidence but which have crushed growth in southern Europe, deepening the crisis.

Euro zone unemployment at the end of last year rose to its highest level since before the euro was created, hitting 10.4 percent in December and reaching as high as 23 percent in Spain.

OPEN MARKETS

Leaders held an informal summit in January where they promised to create jobs and tried to shift the debate from fighting the debt crisis to reviving growth in a bloc that produces 16 percent of global economic output.

They are looking to deploy up to 82 billion euros of unspent funds from the EU's 2007-2013 budget in an attempt to boost employment. But most economists expect scant progress while the euro zone's high debtors are compelled to persist with austerity programs under a recently-agreed 'fiscal compact'.

"It's a good thing that the fiscal compact is no longer on the negotiating table because these talks were absorbing a lot of energy that we now want to devote to growth," Monti, a former EU Commissioner, told investors at the Milan Stock Exchange.

In the 12-nation letter, leaders called for the EU to deliver on an ambitious trade agenda.

"We need decisive action to deliver open global markets," the letter said, urging the EU, which negotiates trade deals on behalf of all 27 countries, to launch trade talks with Japan before the European summer.

Free-trade deals that the EU is negotiating with India, Canada and Asian economies could add 90 billion euros ($118.47 billion) to the EU's gross domestic product, the letter said.

(Additional reporting by Lisa Jucca and Silvia Aloisi in Milan, Francesco Guarascio in Brussels, Andreas Rinke in Berlin and Jan Lopatka in Prague; editing by Anna Willard)

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