European companies say debt crisis risks hurting fragile economic recovery

EU companies: debt crisis is hurting recovery

BRUSSELS — European companies warned Monday that the region’s debt crisis risks damaging a fragile economic recovery by hiking costs for businesses to borrow and invest.

The euro has shed some 20 percent of its value over the past six months as financial markets lost confidence in European governments’ ability to rein in massive debt levels while growth remains low.

Philippe de Buck, who heads the BusinessEurope group representing some 20 million companies, told reporters that “business is more than concerned about the credibility of the euro” after its sharp drop in value.

The group says that businesses are seeing the real impact of recent months’ volatile markets in higher costs for borrowing and more difficulty in getting credit. It says this holds companies back from investing more in the economy.

It is calling on European Union leaders to bolster confidence in the euro currency and their own finances by making the public spending cuts they need to balance their books — and also make longer-term reforms to boost growth by opening up the labor market and shedding business barriers across the 27-nation bloc.

EU leaders meet for talks on June 17 on a new 10-year growth strategy for the region to build on a weak recovery.

Manufacturing is among the few sector picking up in Europe, fueled by exports that BusinessEurope says will grow 5 percent in 2010 and 2011 — and helped by the lower value of the euro which makes eurozone products cheaper for U.S. customers and Asian buyers using the dollar.

Eurozone industrial output grew 0.8 percent in April from the previous month, according to the EU statistics agency, and increased 0.5 percent in the entire EU.

But BusinessEurope says economic growth is stabilizing “at a too low level” — and companies are still very cautious about the recovery. The region’s jobless rate will likely stay at record highs until employers start hiring again in late 2011, it forecasts.

The Spanish government was trying Monday to win back market confidence by pushing on with efforts to curb public spending, this time by selling crucial labor reforms to skeptical opposition parties that would loosen up rigid hiring and firing rules.

The ruling Socialist Party says this could encourage companies to hire more workers — reducing a jobless rate that is the highest in the eurozone — and help to kick start economic growth.

The measures also aim to appease markets and EU nations worried that Spain could be the next eurozone country to require a bailout. Spain must refinance euro40 billion ($49 billion) in debt in June and July, according to Deutsche Bank.

Greece has already sought a bailout from other European Union nations and the International Monetary Fund and some economists believe other indebted nations — such as Spain and Portugal — may also need financial rescue if they can’t borrow what they need from wary investors.

EU and German officials on Monday denied German media reports that Spain was likely to seek help soon.

European Commission Amadeu Altafaj Tardio told reporters in Brussels that there was “no such request and no plan whatsoever to provide financial assistance.” German finance ministry spokesman Michael Offer also said “we see no need for action at this point.”

Separately, French Prime Minister Francois Fillon expressed concern that Europe’s drive toward austerity could go too far and trigger a new economic downturn.

“It is difficult for the European states to balance debt reduction … while simultaneously tightening and not triggering a new recession,” he told reporters in Oslo.

BusinessEurope’s de Buck said government spending cuts had to be accompanied by moves to stoke growth.

“Discipline and growth can go hand in hand even it can be difficult,” he said, calling for governments to shun “indulgence” and become more efficient with their spending.

Associated Press writers Daniel Woolls in Madrid, Verena Schmitt-Roschmann in Berlin and Valeria Criscione in Oslo contributed to this story.