ANGELA Merkel has said Europe needs "political courage and creativity rather than billions of euros" in a thinly disguised rejection of Francois Hollande's pledge to re-write the fiscal pact if he wins the French presidential election on Sunday.
The German Chancellor fired the warning shot at Mr Hollande as the socialist stormed ahead of Ms Merkel's ally Nicolas Sarkozy in the presidential race.
"It is important that we break with the idea that growth always costs a lot of money and must be the result of expensive stimulus programs," she said in an interview due to be published on Wednesday in Hamburg's Abendblatt newspaper.
She added that the eurozone's recovery would depend on rebuilding national finances as well as structural reforms of the job markets and education.
Mr Hollande, who on Tuesday received the backing of France's biggest union, has promised to turn Europe's fiscal pact, which focuses on debt discipline, into a "growth pact". By his own calculations, Mr Hollande's policies will cost an extra €20bn over five years.
Ms Merkel was backed by Mr Sarkozy, who on Tuesday insisted that France could only recover by working harder, not reverting to socialist policies such as the 35-hour week.
But the two architects of Europe's austerity drive looked isolated amid a sea of Labour Day protests across Europe. Trade unions, workers and the vast ranks of the eurozone's unemployed marched in opposition to the savage spending cuts and debt reduction measures.
Experts warned that this weekend - when France and Greece go to the polls - could force a radical change of the dogged pursuit of austerity championed by the so-called "Merkozy" partnership. Even Jean-Claude Juncker, one of the austerity "hard-liners", criticised the powerful axis. Announcing his retirement as chairman of the Eurogroup of 17 finance ministers, Mr Juncker said German and France "act as if they are they only members of the group".
France's biggest union, the CGT, broke the convention of staying neural in the presidential elections by calling for people to vote against the re-election of Mr Sarkozy.
The incumbent French president was dealt another blow as Marine Le Pen refused to endorse either of the two remaining candidates.
Experts have warned that without support from a substantial part of Ms Le Pen's 17.9pc share of the electorate, Mr Sarkozy will struggle to overturn Mr Hollande's dominant lead in the race.
In Spain, union leaders vowed to fight the austerity measures introduced by Mariano Rajoy's government.
After a day that saw an estimated 80 protests paralyze Spanish cities, Ignacio Fernandez Toxo, secretary general of the CCOO union, said the union would fight the new rules to make it easier to hire and fire workers.
He said: "Nearly a million workers across Spain are in the streets saying 'No' to this way of understanding labour relations." He added: "We will keep taking to the streets, and with right on our side, until things in our country are changed."
In Portugal, the 700,000-strong CGTP union, which refused to sign a pact on labour market reforms required under Lisbon's bailout agreement earlier this year, called workers to march under the slogan "Against exploitation and impoverishment, for a policy change".
The reaction of traders was stunted as key stock exchanges were closed for the Labour Day holiday, including in Frankfurt and Paris.
In London, the FTSE 100 rose 1.3pc on signs that America's economy is improving even if Europe's is not.