After years of insisting that the primary cure for Europe’s malaise is to slash spending, the champions of austerity, most notably Chancellor Angela Merkel of Germany, find themselves under intensified pressure to back off unpopular remedies and find some way to restore faltering growth to the world’s largest economic bloc.
On Friday, Prime Minister Mariano Rajoy of Spain, who once promoted aggressive budget cuts, became the latest leader to reject European Union targets for reducing deficits.
That is one of several developments — a recent court ruling against job cuts in Portugal; a new, austerity-averse prime-minister-in-waiting in Italy; and mounting doubts among ordinary Europeans and even the International Monetary Fund — that have forced senior officials in Brussels to acknowledge that a move away from what critics see as a fixation on debt and deficits toward more growth-friendly policies is necessary.
“There has been a clear shift in thinking,” said Guntram Wolff, a German economist who has worked at the European Commission, the union’s policy-making arm, and is now acting director of Bruegel, a Brussels research group.
The flurry of activity comes after an influential academic paper embraced by austerity advocates as evidence that even recessionary economies should cut spending to avoid high debt levels, written by the Harvard scholars Carmen M. Reinhart and Kenneth S. Rogoff, has come under attack for errors that opponents of austerity say helped lead European policy makers astray.
Europe is not about to throw open the spending spigots in the 27 nations of the European Union, even as the bloc teeters on the edge of a new regionwide recession. But officials are clearly shifting toward what Leonardo Domenici, an Italian member of the European Parliament, described as “austerity with a human face.”
Even Ms. Merkel has tried of late to soften her image as the unbending deficit scold of Europe. Asked at a forum in Berlin this week whether the “screw of austerity” had been turned too tight, she complained that what used to be “called saving or consolidation or balanced budgets” is “now called austerity,” adding that this “really sounds like something completely evil.”
In Brussels, the president of the European Commission, José Manuel Barroso, said Europe had been right to tighten its belts, but now needed to soften its approach to win back an angry public. “While this policy is fundamentally right, I think it has reached its limits in many respects,” he said. “It has to have the minimum of political and social support.”
Hints of a new approach in Europe are likely to be greeted as good news by the Obama administration, which has urged healthy European economies to stimulate growth with increased spending and more relaxed monetary policy. The American economy, where government spending has not been reduced as drastically, looks relatively robust in comparison with Europe.
Olli Rehn, a tough-minded Finn responsible for economic and monetary affairs at the European Commission, has taken pains in recent days to stress that, with financial markets mostly becalmed, rapid “fiscal consolidation” — essentially spending cuts and tax hikes — has run its course and will slow to a less painful pace.
Such consolidation, he told a hostile audience in the European Parliament on Thursday, will this year be just half what it was last year, and substantially less severe than cuts planned in the United States. “It is important that we strengthen the social dimension,” he added, describing unemployment in hard-hit countries like Spain, which this week reported a jobless rate of 27.2 percent, as “unacceptably high.”
The change, Mr. Wolff of Bruegel said, began months before the recent academic flap over the Reinhart and Rogoff research but had often gone unnoticed, in part because Germany, the dominant voice in the union’s economic policy, “didn’t want to make a big fuss” and risk pushback from German politicians opposed to cutting Europe’s heavily indebted economic laggards any slack.
But while Ms. Merkel, who faces an election in September, may be backing away from the word “austerity,” she is not aligning herself with France’s Socialist president, François Hollande, and others in demanding that the policy behind the word be radically revised.
European Union officials insist that their economic policy has never been as dogmatic or narrowly focused on spending cuts as critics claim, and say they have long since moved beyond just austerity. But unable to speak plainly in any of the union’s 23 official languages, they have had trouble explaining their efforts in a manner that ordinary people can understand.
Article source: http://www.nytimes.com/2013/04/27/world/europe/eu-is-pressed-to-reconsider-cuts-as-economic-cure.html?partner=rss&emc=rss