January 30, 2012 / 11:46 PM / 8 years ago

Leaders play up progress but EU summit masks tensions

BRUSSELS, Jan 30 (Reuters) - The leaders of the EU’s largest economies were all smiles and warm handshakes at the start of their first summit of 2012, with none of the acrimony that marked their last meeting in December, when the debt crisis was threatening to engulf them.

But the goodwill and good intentions barely masked the political cracks running under the surface.

Ahead of the meeting, German Chancellor Angela Merkel, French President Nicolas Sarkozy and Italian premier Mario Monti met privately for 30 minutes, with the three sharing a joke as they emerged to walk into the summit room side-by-side.

If that wasn’t enough of a show of unity, Britain’s David Cameron made a point of going over to shake Sarkozy’s hand as television cameras rolled, perhaps hoping to put to bed the bad blood that tainted the last summit on Dec. 9, when Sarkozy avoided Cameron after a dispute over new fiscal rules.

But the bonhomie and sense of detente did not last long, with the British and French leaders quickly at odds, Spain and others raising concerns about an excessive focus on austerity, and several east European countries, led by Poland, unhappy about not being fully included in euro zone summits despite signing up to a fiscal treaty enshrining tough debt rules.

At separate news conferences afterwards, Cameron and Sarkozy repeatedly referred to each other by their first names, appearing at pains to dispel any sense of tension or discord.

But on everything from the new treaty on tighter fiscal rules - which only Britain and the Czech Republic of the EU’s 27 countries won’t join - to a financial transactions tax, a single EU patent and industrial policy, London and Paris were at odds.

“I’m a big supporters and friend of Nicolas Sarkozy,” Cameron told reporters. “Every now and then he says something I don’t agree with. Today, when he said that Britain is short of industry - we actually have a larger industrial sector than France - but we’ll gloss over that.”

For his part Sarkozy appeared equally keen to dismiss the disagreement, while also playing up their differences.

“I didn’t want to make anyone angry, I didn’t want to cause anyone any concern. I didn’t mean to offend anyone,” he said when asked about his comments about British industry.

“I just want to signal that our British friends, because they are our friends, chose to prioritise services and notably financial services, and that’s a respectable choice that reflects their historic ties with our American friends.”

POLISH SPAT

It wasn’t just Franco-British strains underrunning the summit, there was also disagreement between Poland and France over whether Warsaw, which is not in the euro zone but intends to join, should be allowed to attend euro zone summits.

“We don’t want to see Europe divided,” Polish Finance Minister Jacek Rostowski said in explaining why Poland was insisting that non-eurozone countries should take part.

“If we come out of the summit showing that Europe is divided, or has been divided, into a certain group that makes decisions and the rest, we don’t think that would be a good signal for anybody.”

France initially stood firm against Poland and its allies - Hungary, the Czech Republic and Slovakia - but a compromise was later reached, with non-eurozone countries invited to attend some euro zone summits each year, diplomats said.

The summit - the 17th leaders have held to tackle the debt crisis over the past two years - was supposed to focus on creating jobs and growth, with the aim of shifting the narrative on after months of emphasising unpopular spending cuts.

But even though all leaders agreed on the need to boost growth and create jobs at a time when Europe is on the brink of recession and 23 million people are unemployed, there was still disagreement on the best way of achieving the goal.

Germany, the EU’s largest economy and biggest contributor to the region’s bailout fund, is adamant that countries must look to cut their budget deficits and carry out structural reforms even while finding ways to stimulate output.

Yet for Spain, for example, where the government is tasked with cutting its budget deficit from 8 percent of GDP to 4.4 percent this year, even as growth contracts, achieving such a target is near to impossible.

Rajoy hinted as much at a press conference ahead of the summit, his first since being elected in November, saying Spain would miss its growth target for 2012. He left open the question of what that would do to its deficit target.

Appearing at the same news conference, European Commission President Jose Manuel Barroso acknowledged Rajoy’s difficulty and said the country’s situation should be discussed at the next finance ministers’ meeting on Feb. 12-13.

“The (fiscal) consolidation should take place as much as possible without leaving aside growth, guaranteeing for instance spending, which can contribute to stimulating it,” Barroso said.

When Rajoy met other leaders at the summit, he was praised for the tough approach he has taken on cutting spending and introducing structural reforms to overhaul the economy.

Finland’s prime minister was overheard congratulating him on his labour reforms, Spanish media reported. To which Rajoy was said to have responded: “Thanks, but it’s cost me a general strike.”

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