What a change of heart in Brussels. Where once the response to the euro crisis was one of universal austerity, now, it seems, there is room for manoeuvre. Indeed, as of Wednesday, some of the eurozone’s biggest economies – not least France and Spain – have been given extra time to meet once-adamantine deficit-reduction targets. Italy, too, has been cut some slack.
In part, such new-found flexibility is to be applauded. With the eurozone in seemingly interminable recession and unemployment running at all-time record levels, deep spending cuts have done little to tame deficits. Another round of austerity is not only economically self-defeating; it also risks prying social fractures even wider. The recognition that cuts alone are no solution is a step forward only if there is progress elsewhere, however. And of that there is, alas, little sign.
First, the talk of a new focus on growth is meaningful only if the bloc’s richer members do more to boost demand. That means cutting taxes, preferably on consumption. Instead, Germany et al are pursuing unnecessary and purely totemic fiscal discipline of their own.
Second, although the European Commission is right to demand swifter structural reforms – to free up sclerotic labour markets, for example – in return for more time to control deficits, there is little reason to have faith in member governments’ promises to comply. Thus far, there has been more talk than action, and with public resistance on the rise and governments increasingly lacking in political capital, the outlook is far from encouraging.
Finally, and most concerning of all, are the vital euro-wide reforms without which the crisis cannot be resolved. Here, progress has slowed to a snail’s pace. With the threat of market panic momentarily neutered by the defensive strategies of the European Central Bank, eurozone leaders have allowed negotiations on banking union to all but founder on nit-picking technicalities. Yet until the toxic link between rocky banks and overexposed sovereigns is unpicked, governments will remain unsafe, credit restricted and growth at best anaemic.
Austerity-for-all in Europe has, rightly, reached the end of the road. But easing fiscal discipline will not, on its own, either solve the euro’s problems or generate growth.Reuse content