End to European Austerity? Probably Not

Austerity may have reaches its “limits”, but that doesn’t mean Europe will reverse course.

European Commission president José Manuel Barroso suggested on Monday that the continent’s austerity policy has run its course. “While I think this policy is fundamentally right, I think it has reached its limits,” he said.

Olli Rehn, the Finnish economy commissioner, argued last Thursday that financial leaders from other G20 countries were “preaching to the converted” when they urged Europe to reconsider its fiscal approach.

“We need to combine the indispensable correction in public finances, huge deficits, huge public debt […] with proper measures for growth,” Barroso said in a speech in Brussels. The Portuguese explained his change of heart by citing mounting popular unrest in countries that are trying to balance public-sector spending. “A policy to be successful not only has to be properly designed; it has to have the minimum of political and social support.”

Barroso spoke just before Eurostat, the bloc’s statistical agency, released its final fiscal figures for 2012. They showed that despite deficit reduction measures, mainly taxes increases, Spain’s shortfall, excluding bank recapitalizations, was 7.1 percent, the largest in the eurozone relative to gross domestic product and well above its original target of 6.3 percent. France’s was 4.8 percent, also higher than its 4.5 percent target.

The European Commission has given both countries more time to bring their deficits under the 3 percent treaty limit.

By admitting that Europe’s strict debt and deficit limits are (still) not being honored, the commission isn’t saying they don’t matter though. Nor did Barroso and Rehn signal any change in what is their end goal: structural economic adjustment. Which means liberalization for the moribund south and in the case of otherwise more competitive member states like Netherlands — which has one of the highest private debts per capita in the world due to a previously generous mortgage policy — housing reform.

Eurostat also showed that the eurozone’s combined deficit last year was 3.7 percent of economic output, a decrease from 4.2 percent in 2011 and 6.5 percent in 2010.

Austerity isn’t dead. Governments in Europe are doing it, however halfheartedly.