Ideal growth compact would need to be linked with tough reform
IT has become fashionable to talk about the need for a eurozone "growth compact" as weariness mounts over a diet of nothing but austerity.
But all this chit-chat won't lead to much unless politicians are prepared to take unpleasant decisions on reform which would boost growth in the long run. That has to be the quid pro quo for loosening the current fiscal squeeze.
Without such a bargain, any growth compact is likely to amount to little more than extra funds for investment. The main guts of a growth compact ought to be somewhat looser fiscal and monetary policy married to deep structural reform.
But even if Germany can be persuaded to go along, there is a limit to what will pass with the bond markets. While investors aren't enamoured with growth-crushing austerity, they won't finance profligacy.
Credible long-term plans to rein in deficits and restore competitiveness are needed. With those in place bond investors would be happy if the European Commission allowed governments another year or so to balance budgets.
The ideal growth compact would match reform of banks, labour and welfare with less short-term austerity and accommodative monetary policy -- and throw in some extra money for investment. Now is the time to push for it.