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From NPR News, this is ALL THINGS CONSIDERED, I'm Melissa Block. European leaders may have agreed on a deal last week to save the euro, but financial markets have been sending a clear message ever since. They're still worried. According to two rating agencies, the deal fails to address the immediate crisis of rising debt and the crushing costs of borrowing. And looming over all of this is one more problem that has both the markets and economists spooked – growth, or a lack of it.
As NPR's Eric Westervelt reports, many experts worry that E.U. leaders are spending too much time belt-tightening and not enough trying to get their economies growing again.
ERIC WESTERVELT, BYLINE: Last year, Portugal's growth rate was anemic, and the economies of Greece and Ireland actually shrank. But the more urgent problem for these countries was mounting debt. And when it looked like they might default, the European Union stepped in with some bailout money and provided a reprieve. The three countries swallowed the bitter medicine that was prescribed and announced cuts in public payrolls and welfare costs, as well as tax hikes.
And while Italy's new prime minister has talked about the need for growth, he, too, has come up with a tough austerity package. Spain's incoming prime minister promises similar pain. All this austerity has sparked fierce street protests across southern Europe. Yet, Germany's finance minister, Wolfgang Schaeuble, shows little sympathy.
WOLFGANG SCHAEUBLE: (Speaking foreign language)
WESTERVELT: When you are in a hopeless situation of excessive debt, you can't escape a painful adjustment process, he said. But some economists are warning that the mono-focus on austerity is not only hurting the most vulnerable, it's making overall economic matters worse.
SIMON TILFORD: I think fiscal austerity in the eurozone has now become part of the crisis rather than a solution to it.
WESTERVELT: Economist Simon Tilford says the debt burden of troubled eurozone countries is growing faster than their economies. Hardly news that will restore investor confidence in eurozone bond markets.
TILFORD: So this is the absolute worst of all worlds: fiscal austerity, contracting economies and a dramatic increase in the burden of the debt relative to the size of the economy because their economies are shrinking and the debt burdens are rising. It's a very, very difficult situation. It's the reason why investors have taken flight because they cannot see, understandably, how various economies are going to grow.
WESTERVELT: And unless they grow, Tilford says, these countries won't be able to service their debt. German economist Ferdinand Fichtner agrees and adds that the current austerity-only focus risks creating a downward spiral.
FERDINAND FICHTNER: Where the weak economy, which stems from the euro-area crisis, feeds into a weaker labor market situation, and that in turn affects consumption again, meaning that the production will drop again. And then you have this negative feedback loop, and you are quickly in a real recession.
WESTERVELT: There are ways debt-troubled countries might try to stimulate growth without spending lots of public money and adding to their debt woes. Strong eurozone nations like Germany and the Netherlands could launch stimulus programs and expand public-private partnership schemes, says former banker Sony Kapoor. He says the E.U. has some funds it could direct to shovel-ready projects.
SONY KAPOOR: For example, cross-border power transmission, transport infrastructure, green energy investments, broadband investments, which effectively the European Investment Bank can start tomorrow with this new capital increase that it could have.
WESTERVELT: But it's hardly clear if those efforts, even if they were implemented, would prove big enough to make a real difference. For years, burdensome bureaucracy and corruption in some eurozone countries have stifled innovation. Even in Germany, with the strongest economy in the eurozone, legendary red tape is an impediment to growth, especially for startups.
German efficiency is a diehard myth. Like most of its eurozone partners, Germany is efficient at throwing up piles of paperwork, layers of approval and forms that need stamping. Sascha Kellert co-founded a high-tech firm called ezeep and applied for a no-collateral loan for startups through the Berlin Investment Bank.
SASCHA KELLERT: It was supposed to be a quick loan. It took us to the total of exceeding four months. That was supposed to be the quick loan. So on the website, they advertise it as taking two weeks, and it turned out to be four months.
WESTERVELT: Economist Gayle Allard says Spain and Italy are talking about cutting rules and regulations, and making it easier for companies to hire and fire people. It's all part of an effort to boost competitiveness and productivity. But so far, she says, it is mostly talk.
GAYLE ALLARD: There is talk of making it easier to do business, definitely talk of labor market reform, although they haven't said exactly how they are going to do it. So unfortunately, there really is a dearth of ideas.
WESTERVELT: Eurozone leaders seem too overwhelmed by the day to day market attacks, she says, and the enormity of the crisis, that they've yet to really think through any serious approach to growth. Eric Westervelt, NPR News, Berlin.
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