The premiers of Spain and Italy teamed up Monday to push the eurozone to focus more on spurring economic growth instead of just reducing debt — a move they hope will reduce high youth unemployment and speed up a banking reform effort aimed at stabilizing Europe's financial system.
After meeting with Spanish Prime Minister Mariano Rajoy, Italian Premier Enrico Letta warned that inaction could prompt rising anti-Europe sentiment among voters across the continent, resulting in political punishment for leaders who support the 17 nations that use the euro currency.
Letta warned that the European Union risks driving its supporters away if it fails to offer a "positive" view of economic and political integration and is only the bearer of bad financial news that has now lasted years.
Europe must focus on getting more young people into the workforce and alleviating the financial hardships ordinary people are facing, he said. In particular, Letta warned, if an upcoming June EU summit ends with another "bureaucratic, routine, formal" result, the 2014 elections for the European Parliament could see a rise in victory for anti-European parties.
"We risk having a European Parliament that will be the most anti-European Parliament ever," he said. "We have to do something to avoid that."
Rajoy defended tax hikes and numerous other measures he invoked last year to reduce Spain's deficit and comply with eurozone demands to shore up Spain's shaky finances and save its banking system from collapse. But he agreed with Letta that more must be done by the eurozone to cut youth unemployment and free up frozen credit in many countries for small and medium-sized businesses.
"National reforms should be accompanied by European Union reforms," he said. "We must all do our unavoidable homework in our countries, but the EU must do more."
A campaign of sharp spending cuts and tax increases has reduced deficits, but it has also pushed the eurozone into a deep recession. Financially weaker countries like Italy and Spain are not expected to recover before next year and the unemployment is at record highs, particularly among the young, where the jobless rate is 57 percent for Spaniards under age 25 and 38 percent in Italy.
Critics of austerity measures say that governments should pursue efforts to stimulate the economy, even if it includes more spending, to pull their nations out of downward economic spirals.
Since coming to office eight days ago, Letta has been on a whirlwind tour of Europe to meet with other top leaders and lay out his desire to ease the economic impact of austerity measures.
Ahead of his meeting with Rajoy, Letta called Spain an "ally to make Europe the continent that places more attention on growth and social discomfort."
Still, he acknowledged that Italy cannot return to its old ways of accumulating debt. Italy's debt is the second-highest in the eurozone after Greece, at 127 percent of annual GDP.
Letta did not specify how his government would create growth without adding to debt. Italy has the third-largest economy in the eurozone, and Spain's is the fourth.
Letta's government has so far frozen a tax on first homes, scrapping a June payment while ministers consider alternative policies. The EU has warned Letta's government that if it cancels the tax entirely, it would have to find 4 billion euros ($5.2 billion) in new revenue elsewhere.
New economic figures released Monday underscored the heavy task awaiting Letta and his ministers.
The national statistics agency forecast that Italy's economy will shrink 1.4 percent this year as household spending and corporate investments both decline, before rising a slight 0.7 percent in 2014. By comparison, the Organization for Economic Cooperation and Development — a global watchdog — forecasts a 1.5 percent contraction this year and 0.5 percent growth in 2014.
The head of Italy's market regulator noted that Italians had reduced their savings over the last 20 years from 22 percent of disposable income to 8 percent. That is eroding potential investments to spur growth and reduce youth unemployment.
"Austerity without hope can become a detonator of a generational crisis," Consob President Giuseppe Vega told an annual meeting at Milan's Stock Exchange.
In the debate over austerity, the two main forces arguing in favor of continued debt reduction have been Germany and the European Central Bank.
On Monday, ECB President Mario Draghi repeated that without sustainable public debts, a country cannot enjoy economic growth. He admitted that austerity's short-term impact on economic growth can be a problem. But he said that could be addressed in part by choosing the right mix of austerity policies.
"To mitigate the inevitable recessionary effects of fiscal consolidation, the composition of such measures must favor the reduction of current public spending and of taxes," Mario Draghi said in a speech in Rome, noting that taxes are relatively high across Europe.
Many governments have both cut spending and raised taxes.
Draghi also insisted that governments should continue to pursue structural reforms, such as making the labor market more flexible.
Barry reported from Milan, Italy. Associated Press writer Nicole Winfield contributed from Rome.