Hollande took pains to say that the dispute with Merkel was political, not personal. "We have to find a balance between budgetary rigor and support for growth," Hollande said, adding that the debate with Germany "is a respectful dialogue." "We don't have the same convictions but we have the same responsibilities," he said.

Angela Merkel, meanwhile, said that governments must first work on getting their finances in order and making their economies more competitive through reforms. "What we need above all is a common understanding in Europe — and there unfortunately isn't one yet — of what actually makes us strong and where growth comes from," Merkel said at a European policy forum in Berlin according to AP.

Giorgio Napolitano also defends his choice to appoint Enrico Letta as PM, despite the continuous fights between PdL and PD. In an interview with Il Messaggero, Napolitano said Letta was the only figure able to lead the country. The frictions between the parties over justice, after Silvio Berlusconi’s rally in which he attacked the magistrates, can be solved easily, Napolitano said. The president also attacks the parties on current priorities, saying some people don’t realise that the country lives on a razor’s edge. 

“So there’s the final rub. Mr Cameron could lose the election and bequeath, as a deferred legacy, Britain’s flight from Europe.”

An OECD report (press release) on Wednesday showed income inequality as measured by the Gini coefficient grew more in the first three years of the crisis to 2010 than in the previous 12 years. El Diario highlights that the largest increase in the Gini was registered in Spain, with an increase of 2.9%, followed by Slovakia, France and Sweden. Before taxes and social transfers, the largest increase In income inequality were registered in Ireland (10% increase in Gini) and again Spain (7%). The report also indicates that poverty rates for youth and children grew in 2007-10 from 12-13% to 14% while the poverty rate for the elderly dropped from 15% to 12%, confirming a previously identified trend for young people to replace the elderly at the group most at risk of poverty in the OECD. The largest increases in child poverty (above 2%) were in Turkey, Spain, Belgium, Slovenia and Hungary.

In a related story by El Pais, a report by the Economic Research Institute of the Valencian region shows not only rising poverty in Spain, but also a divergence in poverty rates among Spanish regions, with increases in the poverty rate as high as 21% in the Canary Islands, 18% in Valencia or 16% in Andalusia. Poverty rates decreases in the Basque Country (-2%), Rioja (-5%) and Navarra (-7%).

La Repubblica reports that the Italian Banking Association (ABI) said the bad loans in banks’ portfolios have reached €64.3bn in March, rising by 4.3% against the March 2012 and by 33% against the previous month. According to ABI the bank loans in Italy to households and non-financial companies dropped 3.1% in March versus the same month in 2012, falling to €1.46bn. The overall bank loans, including lending to financial companies and the public sector, decreased by 2.12% to €1.907bn in the same month. The credit crunch is far from over, with estimates saying the low point is going to be in the second half of the year.

As La Stampa reports, Italian industrial production fell 5.2% in March compared to the same month in 2012, Eurostat said, which shows that there will be no exit from the recession this year. According to Eurostat this was the worst figure of the Eurozone’ big economies. By comparison, industrial production, on a year-on-year basis, was down 1.5% in Germany in March and 1.6% in France.

The Italian housing market, meanwhile, slumped to its lowest level since 1985 last year, according to a common report released by the inland revenue agency and ABI. As reported by L’Unità, during last year 448,364 properties were sold, or 27.5% fewer than in 2011. According to ABI this is the worst annual performance since 1985, when 430,000 homes were sold. The expectations for the current year is for another drop to  400,000 properties. The weak property market could represent a problem also the construction sector, one of the cornerstones of the Italian economy, ABI said. 

“I want to suggest a fifth possibility. I conjecture that "austerians" are concerned that anti-recessionary macro policy will allow a country to "muddle through" a crisis without improving its institutions. In other words, they fear that a successful stimulus would be wasting a good crisis.”

For its part, the European Commission is advising Spain that a single employment contract to end the segmentation of the Spanish labout market "might be a possibility", El Pais reports. Speaking in Madrid at the opening of a seminar on the "youth guarantee" (see press release), Employment Commissioner László Ándor said that the difference between temporary and permanent employment is widest in Spain, among all EU countries.

Speaking to the press in Madrid as he hosted Portuguese PM Pedro Passos Coelho, Spain's Mariano Rajoy praised his labour minister and said he has no intention of reforming Spain's labour laws further as suggested by the European Commission and demanded by Germany, writes ABC. Rajoy and Passos Coelho agreed on the need for banking union, and Europe-level policies for youth employment. Rajoy also supported "any measures" towards improving liquidity for SMEs and families.

In a separate story, El Pais reports that PP regional leaders are seeking to distance themselves from Rajoy, as they fear for their comfortable absolute majorities in the regional parliaments at the next elections, due early in 2015. Contestation of Rajoy remains mostly muted in public, except notably for Madrid PP leader and former regional Premier Esperanza Aguirre, and the Catalan PP leader Alicia Sanchez Camacho who, while in the opposition in Catalonia, supported a higher deficit target for the region, in line with the regional government's demands.

On the issue of bail-in rules, the consensus among MEPs is now that the savers of below €100,000 should be exempted from bail-ins.

The Wall Street Journal reports that Asmussen called the troika a strange setup, that influenced by a crisis mood at the time, and that this will have to change eventually. He was speaking the economic and monetary affairs committee of the European Parliament. He said the end of the troika would come when the ESM became a fully EU institution – as opposed to an inter-government organisation. He said he would not advise to change the troika system now. 

While the statement has an EU institutional logic, we are wondering why a central banker would want to make it.  Could he be positioning himself politically to take over the job of German finance minister in a Grand Coalition – still considered the most likely outcome of the elections?

According to La Repubblica, the idea of a retreat idea came from Angela Merkel who had suggested it to Letta. On the fiscal side, Letta said he won’t negotiate the current situation with the EU to obtain more time to meet fiscal targets. In fact, he wants to lower taxes by structural cuts.