STAFF NEWS & ANALYSIS
EU Diminishes Austerity: Is It a Trend Yet?
By Staff News & Analysis - May 31, 2013

European countries to be allowed to ease austerity… The European Commission has said it will allow some EU member states to slow their pace of austerity cuts, amid concerns over growth. France, Spain, Poland, Portugal, the Netherlands and Slovenia are all being given more time to complete their austerity plans. France will get two more years to bring its budget deficit below 3% of GDP. Commission president Jose Manuel Barroso said the extra time must be "used wisely" to lift competitiveness. − BBC

Dominant Social Theme: Everything is just fine in the EU. We are making some minor adjustments.

Free-Market Analysis: Again we note a shifting of the EU conversation. The implacable authoritarian rigor of the Eurocrats is moderating, and we believe it is because the EU economy is in such wretched shape that its leaders fear outright rebellion.

This was mentioned by German officials the other day and we wrote an article about it, commenting on the sudden concern that such individuals were evincing.

In fact, this is a new phase for the EU. If we are correct, those at the top fear they have gone too far. It is one thing to create an economic disaster in order to deepen a political union; it is another to live with it for a number of years.

Desperation inures people to risk and alienates them from the civil systems that have been built up around them. If the Eurocrats are raising a generation that simply does not believe in regulatory democracy because they have seen it doesn't work, then where does that leave the great federal experiment?

It is an uneasy balancing act, as we have long pointed out, and we think we see in these anti-austerity policies the beginning of an unfreezing of Brussels's severity. Maybe the Southern PIGS are not so lazy after all.

Or perhaps the Eurocrats are simply frightened, finally, that the entire authoritarian edifice they've erected is about to come crashing down. Either way, their attitude seems to be shifting.

The measures came as part of the European Commission's country-specific recommendations. Spain, Poland and Slovenia will also get two more years to bring down their budget deficits though spending cuts and tax increases. The Netherlands and Portugal are having their timetables extended by one year.

Even Europe's stronger economies, including Germany, are being urged to allow wage increases and increase flexibility in the jobs market to improve competitiveness. With regard to the UK, the commission's report includes recommendations for action on the housing supply and rental market, more affordable and better quality childcare, and improving youth training.

It also says that there is not enough transport spending. 'Demanding' timetable Europe remains broadly in recession. The 17-member eurozone shrank by 0.2% in the first three months of the year, and is expected to register negative growth for 2013 as a whole. There has been concern that the focus on fiscal consolidation in many EU states has worsened the economic situation.

This month, the central bank in Frankfurt cut interest rates to a record low of 0.5% and said it was "ready to act if needed". In an official statement, the Commission said the extra time should be used to enact reforms. "Giving more time for certain member states to meet their agreed objectives is designed to enable them to accelerate efforts to put their public finances into order and carry out overdue reforms," it said.

"Reform efforts must be stepped up to credibly produce the required outcomes within the new deadlines and excessive deficits must be corrected." Mr Barroso stressed that the decision to allow some member states to slow the pace of austerity was made on purely economic and financial grounds, rather than for political reasons.

The article also makes mention of increased stimulation by the European Central Bank, a significant and illegal act. But this brings up the issue of what seems to be the Eurocrats ultimate plan, which is to deepen the controlling federal elements of the EU while fighting a rearguard action against public fatigue and rage.

It is a very important issue, this balancing act, though little reported on. As the EU unwinds economically, the fate of the union and certainly the euro hangs in the balance. That's why we may be seeing these slight signs of retreat.

After Thoughts

The import is significant from a political, economic and investment standpoint. We shall need more evidence to consider whether this is becoming a dominant or subdominant social theme. But if the Eurocrats begin to back away from austerity in full cry, we shall be more confident in asserting that their plans have shifted and their agenda delayed by what they have themselves wrought out of arrogance and hubris.

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