On Wednesday, the European Commission (EC) published its country-specific recommendations for the 2013-2014 European semester, the highlight of which was the announcement that six countries -- Spain, France, Poland, Slovenia, the Netherlands, and Portugal -- will be given extra time (two years in the case of Spain, France, Poland, and Slovenia; one year for the Netherlands and Portugal) to bring their budget deficits under 3 percent of GDP. This easing of budget requirements is meant to provide breathing room for the implementation of structural economic reforms, most notably when it comes to labor markets and pensions. A list of the full 27-country recommendations can be found here.
The news has been welcomed as a signal that Europe's austerity-obsessed economic policy is about to undergo a fundamental change, inspiring headlines like "Europe Trades Austerity for Reform" and "Europe yields to reality on austerity." As the New York Timeswrites:
Rather than cutting spending, the latest European recommendations favor stimulating economies through measures like opening up closed professions and injecting more competition to large sectors like utilities and transportation.
At a certain level, a shift was inevitable, even if only in terms of rhetoric. Austerity has been largely ineffective in its stated goal of reducing debt levels in peripheral European countries, and has become a political nightmare for European governments as well as a lightning rod for social protest (to use just one example, on Wednesday Spanish firemen clashed with police in Barcelona over austerity-related cuts). So are we witnessing the eurozone's road-to-Damascus moment?
In short: not really. The EC's recommendations do not so much renounce austerity as slightly ease its implementation -- and any sort of growth or "stimulus" will not come from increased government spending but from large structural adjustments that will likely be both economically painful and politically difficult in the short run (French president François Hollande, for one, is already chafing at the EC's suggestions for his country). These reforms may be necessary, especially in perpetually sclerotic economies like Italy and Portugal, but they are far from the Keynesian pump-priming that many opponents of austerity were hoping for.
The suggestions also fail to address the root of the anger directed at austerity in the first place -- southern European populations who believe that they are being asked to foot the bill for what ultimately amounts to a private-sector banking crisis. While they are likely to welcome the easing of austerity, they are unlikely to be enthused about difficult structural reforms without the cushion of increased spending on things like jobs, housing, and unemployment.
So while the dedicated anti-austerian can take some heart in the German government's plans to directly stimulate select periphery economies, this week's announcement by the EC seems to represent not so much a change in policy as a change in emphasis.