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Barroso says tide turning against austerity

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(BRUSSELS) - The head of the European Commission has suggested that the political and social tide may have turned against austerity, just as major eurozone economies France and Spain seek more time to bring down their deficits.

Supporters of a policy switch away from austerity in the pursuit of growth hailed former Portuguese prime minister, Jose Manuel Barroso, for "waking from a coma" after he suggested the time may have come to rethink the bloc's emphasis on belt-tightening during a Brussels panel discussion Monday evening.

But his remarks also drew criticism as ringing "hollow" after Barroso failed to produce an alternative recipe for the 340 million people of a currency area battered by recession and unemployment.

But Germany, the main advocate for austerity, insisted that Europe "stay the course" on repairing public finances.

A spokesman for Barroso told journalists on Tuesday that any "impression of a U-turn" on policy was wrong, and that he was simply reiterating his message of recent months that Europe must complement austerity with investment to unlock lasting growth.

But the Commission president also said later on Tuesday that a "new narrative" was required for the EU, that could "unite citizens and come up with a new vision."

Barroso said Monday that while the austerity policy "is fundamentally right, I think it has reached its limits in many aspects, because a policy to be successful not only has to be properly designed. It has to have the minimum of political and social support."

Barroso said important improvements such as in EU economic management will "not respond to the concerns of the unemployed citizen in Greece or Portugal or many other countries we could quote."

Though perhaps not politically plausible, he said the goals of austerity must remain bedrock policy in order to create economic space for growth and job creation that is not "artificial" -- that is, based on unsustainable public or private debt.

Barroso did not offer any alternative to austerity, however.

A fellow of the London School of Economics, Sony Kapoor, took to Twitter on Tuesday to complain that the politician's "much belated questioning of austerity rings hollow," because he "merely said it's politically difficult, not that it's economic nonsense."

The economist said austerity was "mindless, arithmetically nonsensical, politically tone deaf, socially risky, intellectually indefensible and financially unsustainable."

New economic survey data released on Tuesday indicated that the eurozone economy contracted for the 19th time in 20 months in April -- with Germany also back in decline.

The head of the Socialists and Democrats in the European Parliament mocked Barroso "for waking up from his five-year coma and finally acknowledging the reality that austerity is neither effective nor socially viable."

Barroso's comments come just weeks before Commission decisions on French and Spanish requests for extra time to reduce their public spending deficits to within agreed EU limits.

Spain is seeking leeway to ease its 2013 deficit target to six percent of gross domestic product (GDP), as the eurozone's fourth-biggest economy is expected to continue to contract this year, maybe as much as 1.5 percent.

Last year Spain's deficit came in at 10.6 percent of GDP, including the exceptional cost of bailing out banks, or 7 percent without.

France is seeking to push pack the target of getting its public deficit under the EU's notional ceiling of 3.0 percent to 2014 from this year. It is expected to post no growth or fall into recession in 2013 and its 2012 deficit came in at 4.8 percent of GDP.

However, Germany remains wary of any looser commitment to Berlin's core eurozone policy -- at least until September general elections.

"Now we must resolutely stay the course, which has always equally stressed consolidation and the strengthening of forces of growth through reforms as the basis for healthy growth," the German finance ministry said Tuesday in a statement.

German Finance Minister Wolfgang Schaeuble said in Washington last week: "Europe can't function without solving the structural problems."


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