LITTLE ROCK — Europe’s backlash against austerity measures gained momentum Monday in a challenge to German Chancellor Angela Merkel’s budget-cutting prescriptions for resolving the debt crisis.
French President Nicolas Sarkozy lost the first round of his re-election bid, and a revolt against extra spending cuts in the traditionally budget-conscious Netherlands propelled Prime Minister Mark Rutte’s coalition toward an early breakup.
Together with anti-austerity rumblings in a campaign for elections in Greece, the shift in sentiment at the heart of Europe generated fresh doubts about the German-driven strategy for getting to grips with the 2-year-old crisis.
“We have organized the track of discipline, that’s very good and we have to continue on that, but we need desperately also to organize the second track, the track of growth, solidarity, investment,” said former Belgian Prime Minister Guy Verhofstadt, now a member of the European Parliament.
Political tensions coincided with a report of a greater-than-expected decline in services and factory output in April, equipping opponents of austerity with evidence that budget-cutting zeal may cast the 17-nation euro region into recession.
Northern European advocates of tight fiscal policies pointed to a separate report from the European statistics office showing that the aggregate debt of euro governments reached $11 trillion in 2011, the highest in the currency’s 13-year history.
Merkel, who has dominated Europe’s crisis response, said debt reduction is the best route to economic health.
While that has pushed down German borrowing costs, other European countries are struggling to convince investors that austerity is the best route to political stability and financial health.
The politician caught in the middle is Sarkozy, who sought to balance the German anti-deficit line with pro-growth policies, and delivered on neither count. France was stripped of its AAA credit rating by Standard & Poor’s in January and had 9.8 percent unemployment in the fourth quarter.
Voters punished Sarkozy on Sunday, making him the first incumbent in the 54-year history of France’s Fifth Republic to come in second in a presidential primary. He now faces an uphill climb in a May6 runoff against front-runner, Socialist rival Francois Hollande.
“What would the National Front mean: no euro, no Europe,” Luxembourg Foreign Minister Jean Asselborn, a Socialist, told reporters in Luxembourg on Monday. “If I were president of the republic, I’d be asking myself why one in five French voted for the National Front.”
A party that rejects immigration and bailouts for debt ridden countries flexed its muscles in the Netherlands, one of four remaining states with a AAA bond rating in the euro zone and a traditional enthusiast for fiscal and wage restraint.
Geert Wilders, head of the Freedom Party, balked at social security cuts over the weekend,removing support for Rutte’s minority government. Rutte’s Cabinet offered to resign Monday, putting early elections on the horizon. Queen Beatrix asked the Cabinet to stay as a caretaker in the meantime.
The Netherlands posted a deficit of 4.7 percent of gross domestic product in 2011, the third year over the euro limit of 3 percent, Monday’s official EU data showed. Rutte needs to cut an extra $12.5 billion euros to meet the target by 2013. The economy is likely to shrink 0.9 percent this year, the EU forecast on Feb. 23.
The rebellion against austerity among longstanding German allies sharpens the focus on elections next month in Greece, the epicenter of the debt crisis.
The Greek poll, also on May 6, looms as a referendum on the budget cuts demanded of Greece in exchange for bailout loans now worth 240 billion euros.
Information for this article was contributed by Maryam Nemazee, Mark Deen, Helene Fouquet, Fred Pals, Martijn van der Starre, Paul Tugwell and Maria Petrakis of Bloomberg News.
Business, Pages 19 on 04/24/2012