Europe’s priority must be to stimulate economic growth, Italy and France said yesterday, putting themselves at odds again with Germany, which is demanding deficit rigour.

With signs of a global slowdown rattling investors and prompting sharp declines across financial markets, French President Francois Hollande and Italian Prime Minster Matteo Renzi stressed the need for expansive measures.

“Relaunching growth is the best way of stabilising the markets,” Hollande said as he arrived in Italy’s financial capital for the start of a two-day meeting of European and Asian leaders.

Both France and Italy unveiled budgets this month that go back on commitments to respect EU borrowing limits – resisting peer pressure to cut their deficits because they say they need extra room to revive their belea-guered economies.

“We have cancelled the word ‘growth’ for years to focus on fiscal discipline, but we cannot exit this crisis without investments,” Renzi said ahead of the Asia-Europe (ASEM) summit, at which leaders will discuss subjects from trade to terrorism. Earlier yesterday German Chancellor Angela Merkel struck a very different tone. Speaking in Berlin before flying to Italy, Merkel said the rest of Europe must stick to EU rules or the bloc’s credibility would be at stake.

“All – and I stress here once again – all member states must fully respect the reinforced rules of the stability and growth pact,” she told Parliament.

Hollande blamed the market turmoil on a variety of factors, including unresolved tensions between Russia and Ukraine, Middle East conflicts and the spread of the deadly Ebola virus.

But Europe’s internal problems were also weighing, he said.

“Having growth which is so low, having questions and uncertainty about the investment plan which has to be put in place, also having successive austerity plans, one on top of the other, create doubt in the markets,” he told reporters.

After two years of relative calm on financial markets – underpinned by pledges of support from the European Central Bank – this week’s turmoil has fuelled fears of a possible return to the debt crisis that brought Europe to the brink of disaster.

The issue will not be resolved at ASEM, but Hollande said it would have to be confronted at an EU summit on October 24. Merkel is committed to balancing the German budget next year and thus ignoring calls from some EU allies and Washington to boost domestic demand in order to combat falling growth rates and price stagnation. Countries attending the ASEM conference, including China, Japan and Russia, account for 60 per cent of the global economy.