The chairman of euro zone finance ministers has proposed a new growth deal which would reward governments reforming their economies with cheap funds for investment and leeway on budget consolidation targets.
The proposal comes at a time as Europe is on the brink of another recession and is desperate to boost economic growth to reduce almost record high unemployment and huge public debt.
The European Central Bank has already cut its interest rates to almost zero and will start asset purchases to inject cash into the moribund economy and reduce the risk of deflation.
"We should try to formulate a new Growth Deal for Europe," Jeroen Dijsselbloem told Reuters in an interview.
The plan would link monetary policy of the European Central Bank, the evaluation of budget policy of euro zone governments, progress on structural reforms and investment plans.
"We look at budgets, reforms, what the ECB is doing, we are thinking how to strengthen investments.
“Now these policies are separate, I would like to link them" Dijsselbloem said.
"It would be worthwhile to bring those four strands together and have a political agreement on how they interconnect."
He said that governments that embark on reforms which bring back trust in the economy, make it more competitive, attract investors, raise the level of research and development and the quality of the workforce should be rewarded with more wiggle room with budget consolidation targets.
They should also be given access to cheaper funds for investment, for example from the European Investment Bank, for concrete projects that would help economic recovery.
"Let's try to interconnect them and make them work to strengthen each other," Dijsselbloem said of monetary policy, investment, structural reforms and budget consolidation.
Dijsselbloem, who is Dutch finance minister, chairs monthly meetings of the powerful group of euro zone finance ministers, the Eurogroup, which sets economic policy for the 18 countries that share the single euro currency.
"It is going to take a political breakthrough to look at these strands together," he said. "Some say let's do more investment, others let's do more budget discipline and structural reforms are left in the middle. If we connect these three, it could be a strong mechanism."
Because of weak growth in France and even a recession in Italy, the euro zone's second and third-largest economies have been pushing hard for more leeway on budget consolidation targets set for them by EU finance ministers, arguing that cutting government spending would hurt growth even further.
But Dijsselbloem defended the rules.
"They become an important political reflection of trust, not just the trust of the outside world in the euro zone, but the trust between countries," Dijsselbloem said.
"It is crucial that if you have a monetary union and stronger economic cooperation that you preserve the trust and over the course of the sovereign debt crisis we have invested heavily in that," he said referring to those governments that had to implement painful reforms.
"Many countries have invested heavily in this monetary union. My role is to make sure we do not damage that trust."
Dijsselbloem said that more government spending now would not fix the problems that France and Italy were facing.
"If governments spend more, most of the time it has a positive short-term effect on growth - no doubt. The question is does it last?" he said.
"If you don't get the economy right, if you don't deal with some of the structural issues in your economy, it will not have a lasting effect, but a very temporary one," he said.
He praised Italy, which passed a major labour reform law this week.
"In France the government will have to do the same," he said. "They have a lot of plans outlined, still not enough, but a lot outlined, and they should get it done."
France is facing a fine of 0.2% of GDP and a stepping up of EU disciplinary action against it after it presented a 2015 budget draft that ignores its commitments from last year to reduce its structural deficit - the one that is independent of the economic growth rate.
"It is our impression from the draft budget that France is quite a distance away from the target, both in nominal deficit targets as well as effective action, which his about the structural deficit and the number and quality of reforms that need to be done," Dijsselbloem said.
