EU Backs Off Austerity

Limit Austerity, EU Official Says A top European Union official signaled his support Monday for relaxing Europe's austerity drive, in what could be a significant break for countries struggling to hit tough budget targets amid persistent economic weakness. In a speech, European Commission President José Manuel Barroso said the policy of austerity pursued by the EU in recent years no longer has the public backing needed to work. – Wall Street Journal
Dominant Social Theme: Austerity will work if we maintain sufficient rigor.
Free-Market Analysis: Like the leaders of Germany's pre-war National Socialist Party, the leaders of the European Union have maintained an implacable rigor when it comes to the restatement and continued application of their failing policies.
The IMF-style austerity that they've have inflicted on Southern Europe with considerable blood-letting has shattered families, ripped apart communities and torn down the larger economic fabric. There is perhaps not a single economy that is the better, so far, for the stern medicine the IMF and the EU have been prescribing.
The problem lies in the cure, which despite the term "austerity" is hardly austere from a governmental perspective. Higher taxes, aggressive tax collection and increased regulation are all part of the equation that has been inflicted on the PIGS of Europe.
Interestingly, the speech by Barroso (see above excerpt) resolutely avoids these issues, preferring to concentrate (predictably) on money printing. Here's more from the article.
"While I think this policy is fundamentally right, I think it has reached its limits," Mr. Barroso said. "A policy to be successful not only has to be properly designed, it has to have the minimum of political and social support."
... In his speech, Mr. Barroso hinted that some countries could be given longer to get their budget deficit in line with EU rules, which ostensibly limit it to 3% of gross domestic product.
"Even if the policy of correcting deficit is fundamentally correct, we can always discuss fine-tuning of pace," he said. He noted, however, that EU finance ministers would have to agree to any
Spanish Finance Minister Luis de Guindos said on Sunday that his new budget plans to be presented later this week will emphasize economic growth and reduce the stress of spending cuts.
"What we are going to do now is strike a better balance between deficit reduction and economic growth," Mr. de Guindos said.
France is also appealing to the commission to get an extension to meet its targets. The country argues that while it won't meet the nominal target, it is on track to meet structural goals, which strip out the impact of a weaker economy.
The euro-zone economy has contracted for the five straight quarters to the end of 2012, with austerity contributing to declines in spending by households and businesses, and a rise in the unemployment rate to a record of 12%.
Official figures for the first quarter of 2013 will be released May 15, and most economists believe they will record a sixth quarter of decline. The IMF last week said it expects the euro zone's economy to contract again this year.
You can see that Barroso is calling for money printing, presumably via European Central Bank stimulus. While initially illegal, the five-year-old crisis has gradually blurred the lines between what is permissible and what is forbidden. A lot of what is taking place was never contemplated by European populations that voted initially for a trading consortium rather than a recreation of Charlemagne's empire.
But it was this latter concept that was always the goal of certain EU politicos and those who stood behind them. We've written numerous articles quoting various Eurocrats over the years who demanded an economic crisis to further European integration.
It is a purely cynical perspective – that the end justifies the means – but one that seems to have been adopted nonetheless. There are plenty of reasons to think the worst of the euro crisis could have been avoided, yet it has dragged on for five years.
To some degree, it may have been the Internet itself that has complicated the continent-spanning plans of top Eurocrats. Financial crises when properly manipulated are supposed to yield desired results without the larger population understanding the depth of its manipulation.
But what we call the Internet Reformation has thoroughly broadcast Brussels's manipulation, intended and otherwise. Now the euro itself is at risk and disgruntlement with the entire EU project has spread around the union.
Accordingly, we seem to be seeing – as we long ago predicted – a "step back" by the powers-that-be supporting the project. In Germany, there is discussion of the role of the euro and the emergence of an anti-euro party (see lead article this issue). And now there is this statement by Barroso, one of the most powerful Eurocrats.
It is too early to tell the outcome of these maneuverings. But Europe is generally in bad shape, Britain has long been in rebellion, the PIGS are in misery and there seems little economic respite on the horizon.
One would have to believe that even if Brussels has the idea of leveraging monetary policy, the moves being made now are not merely part of some larger, canny strategy but are sincerely derived from increasing pushback not only to "austerity" but to the euro itself.
If this is the case, then we are seeing evidence that despite their rhetoric, top Eurocrats are retreating from their determination to see the EU experiment through entirely on their terms.
Conclusion: These are significant moves that are now being discussed. At the same time (as with most issues regarding the EU) their significance is yet to be determined.