EU can't let austerity override investment: Austria's Faymann

[VIENNA] The European Union cannot afford to let fiscal belt-tightening halt investment needed to spur slowing economies, Austria's leader said on Tuesday, setting up a clash with Brussels over Austria's 2015 budget deficit target.

Chancellor Werner Faymann told reporters after a cabinet meeting that the European Commission's call for Austria to run a structurally balanced budget next year was "an interesting opinion that we don't share".

"Frugality is good, but austerity is not an end in itself to spur an economy," the Social Democrat said.

He was speaking as the Austrian central bank revealed its leading indicator suggested the export-dependent economy would stay weak for the rest of the year.

Vienna said last week it plans to run a 2015 deficit of 1 per cent of economic output when adjusted for one-off items and business cycle swings. Brussels wants it to have a balanced structural budget, a goal Austria's finance minister has warned will be hard to hit even in 2016.

A battle over 2015 budgets is already looming, with France and Italy resisting pressure from peers to cut their deficits and arguing that Europe's priority must be to stimulate economies, creating jobs and boosting stubbornly low inflation.

Germany, which has rejected international calls that it do more to revive growth, including from the United States, insists that all euro zone member states must stick to the EU's strict budget rules.

Austrian Finance Minister Hans Joerg Schelling, a conservative, has said every country has to be treated the same when it comes to fiscal rules.

If the choice was between austerity alone or investment, "I call for standing more on the investment side because growth is so slight and unemployment is so high across Europe", Mr Faymann said on Tuesday.

Austria's central bank said the latest quarterly reading of its business cycle indicator suggested the economy expanded by just 0.1 per cent in the third quarter and would grow 0.2 per cent in October-December as exports slacken and sentiment stays weak.

That would point to 2014 gross domestic product growth of 0.8 per cent, below the 0.9 per cent the central bank had forecast in August when it cut its outlook from 1.6 per cent.

The data added to evidence that the euro zone is mired in weak growth and inflation, with even Germany, its biggest member and staunchest advocate of austerity, close to a recession.

REUTERS