BRUSSELS: France and Italy sought on Friday to bridge stark differences with Germany over how to avert economic stagnation and deflation, but Chancellor Angela Merkel warned her peers against repeating the eurozone’s debt crisis.

After the bloc’s revival came to a halt in the second quarter, France and Italy want to shift course away from the spending cuts that marked the bloc’s response to the 2009-2012 crisis. Germany says debt discipline must continue.

Seated around a large oval table in the EU summit’s red marble building, Merkel said no country with a national debt greater than its economic output should be borrowing more, diplomats said.

With a US-style bond-buying plan by the European Central Bank off the table for now, the eurozone has few options, leaving it in search of billions of euros for spending that Berlin wants to see come from the private sector.

According to people in the room, Merkel said record low interest rates gave the eurozone “room to breathe” and that a mix of private investment, fiscal discipline and openness to fast-growing Asian economies was the way forward.

Merkel also said a proposed free-trade deal with the United States, which is increasingly unpopular in Europe, was crucial.

But such measures could take years to bear fruit, while the eurozone’s poor performance is becoming a wider concern, with the United States and the International Monetary Fund worrying that the bloc that makes up a fifth of the world economy is a drag on global prosperity.

The debate is complicated by EU rules that seek to keep country’s public finances in order and Germany’s promise to balance its books next year for the first time since 1969.

The European Union’s top economic official renewed calls on Berlin to act, saying that without investment the future was bleak for Europe’s biggest economy, even if it is stronger than most.

“All euro area countries have shortages in potential growth, including Germany,” said Jyrki Katainen, the European Commissioner who will become the bloc’s growth tsar from November, tasked with bringing down near record unemployment and raising investment.

Published in Dawn, October 25th, 2014